tv C-SPAN Weekend CSPAN January 30, 2010 10:00am-1:59pm EST
experience in finance and corporate leadership. served as chairman ofç putnam investment management and was chief executive officer of putnam until -- from 2003-2008. as the chief executive officer, he was charged with reorganizing the business and improving business policies and compliance following a series of probes into the industry's business practices. based on theç success at putna, he wasç named oneçç of the mt influential cfa çinstitute personal commitment toéo8l!9ñ[i3 reputation.
prior to, he served as chairman and ceo of dollar investments and as -- delaware investments. he earned his mba from harvard business school where he was a scholar and he also earned it from harvard law school. as an undergraduate, he with axd degree in economics. he is also a certified financial analyst. he currently serves as chairman of the board of trustees for dartmouth college and is on harvard business school's board of the deans advisers. ladies and gentlemen, please give a warm welcome. [applause] çç>> thank you.
thank you for coming today. i am so pleased to have the opportunity toç speak with yout thisozdistinguished form. ççwáçw3çççi am not from di feel like i have some things in common with you. i grew up in philadelphia, helping run our family business which delivers license plates to automobile dealers. i have had someçxd experience h the ups and downs of the automobile business. when an automobile dealer closed up and went out of business, our family often suffered as well because of unpaid bill that had to be written off. over the years, i remember watching the 76ers' and the pistonst( play some really terrific basketball games. many of you watched those same games. you can imagine what a thrill it was for me this morning to meet
with your new mayor. i even got a signed a basketball -- i even got a signed basketball. i have been at freddie mac for six months now. i took the job because i wanted to leave it and motivate our truly talented workforce. -- lead and motivate our truly talented workforce. i wanted to help restrain the company for a successful future. most of all, i believe in the company's purpose of supporting housing in our nation. despite our being in a conservator ships and in some ways because of it, freddie mac can play an extremely vital role in helping our nation recover from the economic and foreclosure crisis. there is a great deal we are doing to help the country, the housing sector and america's
families. i wanted to help the company contribute all that it can to this important mission. detroit is a fitting place to discuss the housing crisis and our nation's response to it. i cannot think of a major city that has been more hard hit in this crisis or one that -- whose people are more resilience in the face of it. i would like to talk about three main things today. first, our nation is working through the most severe housing correction since the great depression. i want to focus on the implications of the foreclosure crisis nationally and here in michigan. in looking at housing and the broader economy, i will consider both the challenges and the
opportunities for recovery. second, i will cover the top priorities are regulator has identified for freddie mac. i will discuss our effort to make the president's program making home affordable -- affordable successful. i will also survey some of the many other things we do to provide stability, liquidity, and affordability to the housing financial system. finally, i will conclude with a few brief thoughts on the nature of our housing finance system and the kind of secondary mortgage market we need going forward. let me start with freddie mac's view of the foreclosure crisis and then speak to some macro economic issues as well. for many years, with manufacturing in decline,
subprime delinquency rate here in michigan were among the highest in our nation. at the start of 2005, michigan's serious delinquency rate for subprime loans was 50% higher than the national average. these rates rose rapidly, in the third quarter of 2009 at 28.9%. today, you have plenty of company. nationally, the subprime delinquency rate rose even faster, so it now stands at 28.7%, essentially the same as yours. michigan serious delinquency rate among the prime loans is now also very close to the national average at 6.9% vers us 6.3% for the nation. these numbers are painful.
that is why the signs of improvement we are seeing now are so encouraging. nationally, at the macro economic data seemed to indicate that we are in transition to a recovery. our best estimate is that the rate of growth the sheer will be relatively modest following such a severe -- growth this year will be relatively modest. the recovery will be sustained over time. two main factors support this. first, the recovery is supported by last year's fiscal stimulus, only half of which has been spent were obligated. second, the fed is keeping interest rates at record lows, which is also helping the private sector. in housing, we are seeing signs of stabilization as well. the numbers will always bounce
around, but from home sales to house prices, it appears that nationally, we may be approaching a bottom. the big downside risk, potentially hitting the market at prices that are destructive. upside factors include the tax credit for home purchases that was extended through april 30. it really helps that mortgage rates are low. we expect the 30-year fixed rate to remain between about 5-6% throughout 2010. even the high end of that range is a starkly a very low rate. -- historically a very low rate. what about employment? what about detroit? employment is typically a
lagging indicator in a recovery and we do not expect the national unemployment rate to decline until at least the second quarter of this year. as for detroit, the unemployment rate of 15.8% is more than five percentage points above the national average. i would point out, however, that other great cities that face similar -- have faced similar challenges successfully. pittsburgh went from being a world leader in field production to economic wasteland when that manufacturing industry collapsed. pittsburg's rebirth has been based upon diversified employment in such fields as education, and health care. in fact, its first largest manufacturing firm, u.s. steel, is no longer even one of the city's top 10 employers.
the city's unemployment rate is well below the national average. in pittsburgh, carnegie-mellon and the university of pittsburgh helped spur innovation and economic growth. hear, the university of michigan and wayne state university campus similar rules. likewise, the large public investments you have made in green jobs draw on the detroit area's exceptional infrastructure of field engineering, research and development, and manufacturing. a recent poll of detroit area residents showed that despite their acute awareness of the region's problems, 63% of respondents are optimistic about the future of the detroit area. that does not strike me as crazy cockeyed optimism, rather, i think the people of detroit
know that with smart, hard work and patience, this can be a vibrant economic center again with a transformed and diversified employment base. it will take some time, but it has been done before and it can be done again. as in pittsburgh, the low cost of housing here can become a plus to attract employers. would that on the people of detroit -- i would bet on the people of detroit. let me now turn to freddie mac. in focusing on the role of freddie mac, let me turn to the broad priorities as identified by our regular -- regulator and conservator. the federal financing housing agency has described the three main duties of the government sponsored entities as follows --
we are to provide ongoing support to the housing market. the mediates identified weaknesses in our company -- we mediates -- remediatwe identified weaknesses in our company. we are to prevent avoidable foreclosures. these are useful categories of their duties and i will focus on the first and third. i will describe our stable ongoing support to the housing market, which includes a large part of our every day mission. with the market still seized up, we have continued to provide an ongoing stream of funding for mortgages every day in all geographic markets. in fact, the gse's funded
almost three-quarters. that is 72% of all mortgages last year. we have done this at a time when most other sources of liquidity have dried up. even when private label investors abandoned the market, freddie mac continue to serve our mission on behalf of homeowners and renters across the nation. in this kind of environment, our constancy and stability is especially valuable. as a shaun donovan testified before congress in october, we cannot lose sight of the important role that the gse's are planned today in the recovery of the market. without them, there would not be mortgage capital -- capital çavailable broadly and it would
certainly not be available at the rates that have been available. last year, freddie mac provided liquidity for nearly $550 billion in home loans. we helped some 2.2 million borrowers and another 350,000 renters. it may not seem important who provides liquidity to the market, but it is. our charter is to be in housing and only housing. we stay in this market in good times and bad times. unfortunately, the history shows that private lenders abandon
housing when the going gets tough. we also have an incentive to underwrite mortgages in a matter that is safe and affordable. freddie mac owns almost a quarter of the mortgages in the united states and yet we account for less than 10% of the seriously delinquent mortgages. we own 25%, which account for less than 10% of the seriously delinquent mortgages. by contrast, private label securities represent only 12% of first mortgages outstanding, but the account for one-third of all seriously delinquent loans. when you ask people what fraction of freddie mac's loans they think are seriously delinquent, the estimates are usually at one in five and go up from there. the truth is that less than one
in it 25 of our loans are seriously delinquent. this record puts us among the very best in the industry. let me move to the other major duty of the gse's. freddie mac is devoting resources to the task of preventing avoidable foreclosures. this is not a new focus for us. we are a longtime leader and innovator in helping families hold onto their homes. over the past five years, we have worked through our servicers to help almost half a million seriously delinquent borrowers avoid foreclosure. for some homeowners, we modified the original terms of the loan to make it more affordable. to others, we offer forbearance , an agreement that temporarily suspends or lowers payments
after a job loss, help issue, or other major event. -- health issue, or other major event. our alternatives also include repayment plans that had passed to a mouse to monthly payments to bring homeowners current over time. in the first three quarters of 2009 alone, using methods like these that freddie mac helped pioneered, we helped nearly 100,000 struggling borrowers avoid foreclosure. nonetheless, with over 4.5 million families on the brink of losing their homes, there is a historic need for a national effort to address these pressing issues. we are striving to do our part in that effort. i want to talk about foreclosure prevention mainly, but not
exclusively, as it relates to the making home affordable program. the program is the obama administration's anti foreclosure and refinance program and it is where our company is presently focusing most of our home ownership preservation work. mha consists of two main parts. a refinancing program and a loan modification program. i will discuss both. over the past year, borrowers have flocked to take advantage of historically low interest rates and to refinance their homes -- home loans. before new hampshire de -- before mha, it was difficult for borrowers to qualify for refinancing. this happened more and more due to house price declines.
our refinance program is aimed freddie mac-owned guaranteed mortgages who were up to date on their payments but in eligible for a traditional refinance to take advantage of the low interest rate available today. their loan to value ratio can be as high as 125%. çççthe program has made a rel difference. through the end of last year, we had refinanced loans for almost 175,000 families through mha. families often see their interest rates drop by thousands of dollars per year. together with freddie mac's longstanding programs, we've refinanced approximately $379
billion in home loans in the year 2009. this created an estimated $4.5 billion in annual aggregate interest rate savings for more than 1.7 million families. the second to piece of the program is called home affordable modification program. this part of the program is designed to modify existing mortgages so that they are more sustainable for the long term. through the end of last year, we had initiated nearly 143,000 trial modifications. borrowers are saving an average of $600 per month. it may sound as if initiating
143,000 hamp modifications is small when compared, but please remember that the universe of @ risk borrowers that we can help is less than a 10th of the total. that is a fraction of seriously delinquent loans held by freddie mac. moreover, fully a third of the homes onw3 which freddie mac wod çlike to arrange a modification are empty. obviously, it is hard to work out a loan modification when nobody is home. if modifying these loans worry easy, mha would not be needed. because these modifications are challenging and we are committed to supporting the president's program, we have redoubled our efforts under the program just
last fall. to be even more proactive, we have ruled out additional initiative and begun to invest $25 million in new strategy and projects. this initial investment will allow us to test approaches and see what works best. at the same time, we're helping tens of thousands of families. for those of us working to help families save their homes, there is nothing more frustrating than an avoidable foreclosure. çparticularly when there are so many options available to homeowners, but they often just do not know what to do. çthey do not know who to belie. they do not know who to trust. we know from research and our own experience that when borrow words actually work one on one with a trusted housing counselor, they are far more
likely toç take the steps to se their homes. çour anti for closure team has been reaching out to in an unprecedented ways to at risk borrowers. we have hired titanium solutions, a national expert in ñrcontacting and canceling homeowners' cut to go to borrowers' homes, knock on their doors and explain, what could happen if they do not take action. when needed, they return to help homeowners fill out the required documents. to reach even more delinquent borrowers, our for closure prevention experts have teamed up with their housing outreach team to pilot some very creative efforts. let me tell you about one we are announcing just this week. it is a borrower help network
thatç will reach out to thousas of borrowers across the nation, ççincluding detroit, who haven confused or demoralized by the mortgage modification process. the freddie mac borrower help network uses several of the nation's most trusted nonprofit organizations to give these borrowers confidential, personalized, holistic financial counseling over the phone and help them work through the different options for avoiding for closure. holistic counseling addresses credit-card and other debt, and not just mortgage debt in isolation. researchxd shows that this kind of counseling from trusted nonprofits can substantially improve a borrow worse odds of avoiding a foreclosure. -- orçç were -- a borrower's s
of a boarding in foreclosure. w3southwest is an outstanding organization that is already working with over 2400 distressed detroitç borrowers d is successfully helped nearly 1400 of them. the borrower help network is national in scope. by working with a national urban çleague, the national council d other established nonprofit organizations, our goal is to make theç same counseling available to thousands of freddie mac borrowers across the country. in addition, we will be delivering these same kinds of [yçzjdvwñh regionalxdxrq>7veráhujui helpq centers. we are announcing our!virst pilot centers this week in
chicago, washington d.c., phoenix, and california. the scale and scope of this pilot initiative is unprecedented for freddie mac. if it is successful, we hope to replicate it in other cities. çall these ambitious efforts ae directed at the difficult task -- all -- we should give these borrow words of the same type of personalized sitting around the kitchen table guidance that borrowers initially got when they first buy a home or a play for a mortgage.
all told, we estimate that freddie mac helped more than 250,000 borrowers, at 250,000 borrowers to help them avoid foreclosure in 2009. let me conclude with a few brief thoughts of the nature of our housing finance system -- we want to make sure that the fighting that has a voice in the debate about the future. let me be clear, our role is to
answer questions, provide information and be responsive. others will decide, others are the decision makers. still, given the opportunity, what kinds of facts will be bring to the decision makers? what are some of the key traits we believe the u.s. secondary mortgage market ought to include into the gse's help the housing market achieve these desirable traits? we will remind decision makers that freddie mac has a constructive vital role. the tseç -- gse çmake possiblf
the 30-year mortgage. by giving families stability and certainty, thisxd is a truexd economic asset for our nation. t(ççççwe are the constant ly provider. we deal with innovation in the mortgage market better than a purely government entity. we are an important countercyclical influence that staysu! in the housing finance market even when a purely private capital has pulled out? ççwe do not claim to be perfe.
i am glad our regulator was strengthened and thatç further reform and regulation is virtually certain. we perform a vital mission for theç nation and the mha program is just one example. çi thinkç there is how much positive to be said about the gse and help our value will be recognized. our intense focus is on helping the housing sector. that is what our employees care about and it is deeply moving. it means we are needed. we had a vital role and we are making a difference.
ççqthere is nothing better thn having a purpose that is meaningful and important. itç is why the employees are te most committed i ever had the privilege to lead. it is why their special skills are so vital to the nation. with that, i want to thank you very much for your attention and i would be happy to answer your questions. thank you. [applause] >> thank you for your remarks. we have a few questions here. i]çthe first one, it is from aç student. okhowell large is the risk of inflation over the next several years and how will that effect
in the u.s. ability to land mortgages? >> there obviously school to lose -- to schools of thought on inflation. in the near term, it is not much of a problem. çççthere is some concern dowe road to fiscal policy -- it could lead to inflation down the road. i think the clear answer for the next couple of years is that inflation will not be much of a problem and therefore, i think there is a great likelihood thatç interest rates stay at a
current low level. our forecast for the year it is that mortgage rates will stay at that 5% level. there could be some move up in mortgage rates as the government reduces their support of mortgage-backed securities. that is why we think there would be some movement during the course of the year up from where we are now. last week, you could buy a 30- year fixed mortgage with limited prepayment andç the rate was ls than 5%. it was a pretty remarkable thing. t(çwe do not think it will stat that level for the entire year as the government pulls back, but it will still stay under control. çç
>> let me start by saying that i am a real barney frank fan. i think i know him reasonably well. i have spent a lot of years in boston. i ran a financial services company. he chairs the financial-services committeeç and he is from bostn and we have a lot in common. i have got to know his staff quite well. i am a real admirer of congressman frank. he is incredibly bright. it he is committed. he is a true public servants. he really cares and i admire him greatly. secondly, in my speech, i talked about the fact that freddie mac is not a decision maker. we do not even get to lobby or advocate.
that is precluded in our current state not a decision maker. i totally gets that the house financial-çservices committee s a decision maker. it is very important. they will be heavily involved in at the decision asi] to what happens to bñrhe gse's. i do have to say that friday was not my best day. because i am investment person, i do pay attention to bloomberg. that is a news lifeline for those in the investment business. there was a headline that came across about 11:00ç that congressman frank was having a hearing andç said that he would like the company to be abolished
and felt that the votes were there. çóhe said they wouldç be votinr the abolishment of freddie may -- freddieç mac and fannie mae. not a great headline. it was picked up and there were many, many articles used that word abolished. i have not had a chance to visit with the congressmanq. i look forward to doing so. i know i will have the çopportunity to do so. we will talk about it. i do get that he is the decision maker, but in this period, it was not a greatç deal -- great day for me and it was not a great day for our 6000 employees that saw that headline. it is something that i met with employees on monday.
not our entire workforce, but a subset to seeç how the company was dealingç with this issue. it was an issue. it was not a great weekend for our employees and is one of the things that as ceo, i have to deal with. i haveok to try to keep people energized, motivated, working on the president's program, making sure that we provide liquidity and affordability to the mortgage market. i have got to do all current -- energized. we have done a great job so far, but certainly that headline was not helpful. >> after about six months, would you have an assessment about the capabilities of freddie mac? ç>> absolutely remarkable. what is amazing about this company --ç i was at putnam and got an invitation to become the
ceo of freddie mac. i]çat that point, freddie mac d not have a ceo. it did not have a chief financial officer at it did not have a chief operating officer. it had none of those three positions at the topç i arrived there in the summer and it was remarkable. i have been a pet impressed with how bright the people are there, how truly committed to the mission they are. i sometimes joke that i come from the financial services world, the asset management investment banking world and and
we talked about serving the client. what is different is that at freddieç mac, theyçñr reallye it. it really caret(ç about the commission. they care about trying to help + çw3ç;çççóçt(itç has blown. t(çóççu!çóçi have several qu, some with an edge on them. >> that is okay. ç>>ç÷myçççç there are sevs about what happens historic way and what changes need to be made to avoid the sameçç kind of bproblems in the future we would like to know what you think happenedç >> my focus is on the
future and trying to help the mortgage market going forward. iç just well offer the followig statistics. as all of you are evaluating the work that was done by freddie mac, remember this, we are responsible for 25% of the mortgages and gets about only 9 percent of them are in serious default. archibald -- are default ratio is about -- our default ratio is 3.8%. i think it is easy to -- for someone to be a monday morning quarterback and look for blame. i think the statistics make it absolutely clear that for the most part, freddie mac did a
very, very good job of supporting the housing market, used sound judgment when they were making the loans. i amç sure they were not perfe. i am sure that others could have done a better job with hindsight. it seems to me that those statistics indicate that that company did a reasonable job and the major shortcoming of was that the only business that they were in by chartered was the housing finance business and there has been just a complete seat change in what has been going on in the housing market. it if that is all you invest and, you have a default rate of about 3% sadr 4%, you will have an economic problem. >> there was some question about people having good credit ratings and not being able to get mortgages. any thoughts on that? >> not surprisingly, credit is a pendulum andç i do not think tt
is a surprise for anybody. it is true for manufacturing companies and it is true for individuals. that is after there is a problem, credit tightens up throughout the entire economy and then the economy starts doing better and people start getting more comfortable with extending credit and it tends to lose in overtime. i have watched this for 35 or 40 years and it isç just a sequene that we will have to work through. i do not think it is all surprising that it will be a littlew3 tougher to get mortgag. i can further say that last year, the total amount of mortgages we put onç were 550 billion. a lot of it was refinancing,xd t we were very active in the market and it is possible to work with people. we are very proud of theç -- we
feel good about it. >> there are several questions about what changes may have occurred inside freddie mac, what changes occurred so that the same problem will not occur in the next three-five years. >> right now, our principal focus has notç been on changing the company is still much as it has been being responsive to the crisis that we are facing and doing all that we can to keep people in their homes and make sure that we support the president's program and make sure that there is mortgage money available and that we meet our goal of liquidity, affordability, and stability for the mortgage market. i would say that we continue to add resources in the area of credit and risk and want to do an even better job. that is not an indication that we were not doing it well in the past, but we understand that we
have to make sure that we are a strong companyç and that is one of the places we put some resources. i _ the notion that my tenure has not been aboutq fundamental change at the company, so much as it has been doing so much that we can to keep the mortgage market liquid. >> i have another question from a student. it is an inspiring young investor, i guess. it's spreading at stop safer to buy because it is government sponsored -- stock -- is a freddie mac stock safer to buy because it is government sponsored? >> a great question. we have to distinguish between common stock and debt. the underlying thesis of that question is truu with regard to fixed income security, but probably not so true with regard to the equity. the equity is not guaranteed by
the government and it is a very, very volatile stock. it trades in the zone of $1. one would have to think of it as a risky speculative stock. it pays no dividend. çthere are not earnings. we have drawn down about $52 billion from the government. we pay a 10% interest rate on that. we pay about $5 billion. for a young person, i would want them to understand the full risks associated with that equity investment. as toç me buying stock, i haveo make a disclosure, if i do buy stock in the company and i have made no such disclosure. >> thank you. this is our last question.
why would you want to be the ceo of this organization? [laughter] >> my wife and i met in the law school and i have great regard for her and she asked me that question before i took the job and several times thereafter. she gave me a chance to reflect on it. first of all, i think it has something to do with my age. i am not sure that it would have been exactly the right careerc i]development for somebody who was in the heart ofi] their carr because there is so much uncertainty as to what will qi am 61 and it came at the rigt
time in my life where i could spend 2-3-4 whatever is to stabilize the company so that it could go on to the next chapter, whatever the decision makers decide. i thought it would be helpful for an organization in this position to haveç somebody bbc zero that did not have a really çstrong ax to grind in the outcome who could be doing what is best for the country and doing what is best for the employees in terms of the final determination. because of my age, that was an easy thing to do. çi struggled with that decision because of the things that you qread in the newspapers. once i did it, i absolutely have felt good about it every day since. a little shaky last friday.
generally, i felt very positive every day and it is because of the people. they have been so welcoming to me and it has been a great team to join. >> thank you. [applause] ç>> thank you so much forq your leadership and enthusiasm for your position. and for being with us todayç. ladies and gentlemen, thank you for being with us. this meeting is adjourned. [applause] >> this week, the second circuit court concerning a lower
court's ruling to force the federal reserve to identify financial institutions that received assistance from the government tarp program. both fox news and bloomberg are asking that the records be released under the freedom of information act. today at 7:00 eastern on c-span. >> do you feel that american jazz can be an instrument for spreading good will overseas? >> i think so. it is like a religion. i>> he was without question the single most important figure in a jazz and the 20 century. >> his new biography of jazz great louis armstrong at 8:00. >> tim geithner told a congressional panel wednesday that heçó played no role in the decision to limit to the disclosure of information aboutç
assistance for insurance company a i g. the testimony by tim geithner who was president of the new york fed bank was part of a daylong hearing on the rescue of aig. and 25 minutes. okç the committee will come to order. the committee will come to order. good morning. on september the 16, 2008, the wall street giant aig faced immediate bankruptcy. aig was saved from collapse when the american people came to the rescue with an $85 billion bailout. less than two moss later, the american taxpayer was again
forced to pay the bill when the federal reserve directed aig to hand out billions of dollars to counterparties, that inclupded the biggest names on wall street. in effect, the taxpayers were propping up the hollow shells of aig. by stuffing it with money, and the rest of wall street came by and looted the corpse. the circumstances surrounding the payments to the counterparties has created an air of suspicion and distrust among the american people, starting with the new york feds. initial refusal to name the counterparties. the new york fed argued that disclosing these counterparties would somehow injure aig. in fact, when the information was finally released under pressure from congress, nothing happened.
in an absolutely no affect on aig's business or financial condition, but it did have an affect on the credibility of the federal reserve and it called into question the fed's pension for secrecy. we need to change the culture on wall street and the culture among the regulators from the secrecy of transparency recognizing that only true, confidential competitive or consumer information should be protected. as we sit here, a year and a half later, fdig handed out billions in taxpayer dollars because of this secrecy. we still don't know how or why the decision to rescue aig was made or who made the decision to author aig's trading partners
100 cents on the dollar in the so-called counterparty payments. every day in the business world when a company is having financial problems, its creditors have to take less money than they are owed. otherwise, they risk not getting any money at all. they call this a haircut. in the case of aig, nobody got a haircut. instead, they were given a piggy bank full of taxpayers' dollars, and said, help yourself. let me just say plainly that i think just about every american would say the government should have forced aig's counterparties to take less money evidently major decisions were made by combination of the federal reserve, the federal reserve bank of new york and the bush
treasury gept. tod definite. today we will hear from witnesses who were involved in making these decisions and we hope they can shed like on a murky set of facts. under subpoena, the committee obtained more than 250,000 pages of documents from the new york fed tell detailing its handling of the aig counterparties. particularly disturbing is the fact that these e-mails indicate that aig proposed to disclose to the sec and the public the names of the counterparties and the payments, but it was the new york feds that directed aig to withhold this information. as one new york fed staffer put it, any public disclosure by aig is still subject to fed approval. at least two things are clear here.
the entire financial regulatory was broken, and there shouldn't be any more bailouts. the lack of transparency we have seen in the double bailout of aig leads to distrust, which leads to anger. the question that looms over all of this, how do we prevent a repeat of the financial crisis in the future? unless the congress adopt s genuine financial services reform, it will be only a matter of time before we see another aig, bear stearns, another lehman brothers and the next big bank will be too big to fail, and the taxpayers will wind up footing the bill again and again and again. i ask my republican colleagues on this committee to join with me in fixing the system.
blame is about yesterday. fixing this system is about today and the future. in the aig case, we can talk all we want to about complicated business deals, but this all boils down to a simple concept. when average people are losing their homes and jobs, the same big banks that caused the problems got every dollar back courtesy of the american taxpayer. and the federal reserve tried to keep important information a secret. secrecy leads to distrust, and the american people now distrust what happened in these bailouts. congress has the right to know how and why that happened, and the american people have the right to know how and why that happened. i hope that today we can get answers to these and other important questions. i now yield to our ranking
member, the gentleman from california, congressman darrell issa for his opening statement. >> thank you, mr. chairman, and you have our promise that this has been and will continue to be a bipartisan oversight of these and all the issues related to the feds current and future authority. mr. chairman, i'd like to ask unanimous consent pursuant to our rules that spencer bachus, the ranking member on financial services committee, kevin brady of texas, the ranking house republican on the joint economic committee, roy blount, the former majority whip, ron paul, whose credentials on this are well understood and cliff sterns of florida be allowed to sit in today and in time ask questioning pursuant to the rules. >> without objection. >> additionally i would ask at this time to submit for the record schedule a, which is, in fact, the shortfall agreements between products since referred
to in questions and we want to make sure they're officially in the record. >> observing the right to object. >> okay. additionally, mr. chairman, i would ask unanimous consent that the eight letters previously sent to secretary geithner and as of today not responded to also be placed in the record at this time, although they will not be reviewed further during this hearing. >> is there a -- observe to right to object. >> thank you, mr. chairman. for all of this and more, working together with you on the subpoena documents has caused both majority and minority toy glean considerable new information. in recent weeks, this committee receiving these documents have causes to better understand the new york fed's pressured aig to abort negotiations designed to obtain a haircut, as it was called, from its counterparties, and keep the details of counterparties payments from appearing on forms, the firms
forms at the sec. today, among the questions we'll ask is, should the@@@ arr"rr"rr a.g.'s founder, hank greenberg, previously said in testimony, made it very clear that he believes that one thing should have occurred sooner, and that bankruptcy would have been a clear way to resolve a company in which he is the largest stockholder. i am practicing it after that hearing, aig has greengage foundlings -- greengage
founders. not to say there is a lot of good news. but it is clear that the money paid and being kept secret will keep the taxpayer from receiving these dollars. okay now? you can't? okay. now -- okay. i will focus on this microphone this time. usually the problem is, i'm too well heard. right, mr. chairman? >> generally. >> today we will have an opportunity to ask questions and the american people will have the right, and i believe will receive, straightforward answers. so far, mr. chairman, this is what we know. we know that some of today's witnesses played a central role in the decision to bail out aig rather than allow the normal bankruptcy procedures to run their course.
we know that one of today's witnesses made the decision to pay aig counterparties at 100 cents on the dollar. we know that one of today's witnesses was the primary architect of the aig trust agreement, whereby, the taxpayers investment in aig is managed not in the interests of the u.s. taxpayers, but of the united states treasury department. that was from previous testimony, and we rely on that to say, perhaps that is not the right answer. we know that the new york feds sought to cover the counterparty payments made possible by the taxpayers' money. we now better understand that the new york fed transferred their earlier responsibility to the american people after t.a.r.p. was passed. we know that the new york feds succeeding in getting the -- succeeded in getting the sec to continue the cover-up until 2018, ten years from the date the bailout began. and we know that the full amount paid to aig's counterparties
will likely never be repaid to the american people. some facts, mr. chairman, remain unknown or uncertain. secretary geithner has claimed publicly that he has recused himself from the day-to-day management of the new york fed when the cover-up occurred. in fact, he has asserted complete ignorance of the fed's efforts to cover up the bailout details. many people, including members of this committee, have a hard time believing that secretary geithner entered into an absolute cone of silence for those of us old enough to remember what that was, on the day of his nomination, it was announced. where was secretary geithner for the months and months that back-door bailouts were being questioned in the media? did he ever wonder why his decision to pay aig's counterparty was kept secret for so long? these are the questions the american people deserve. mr. chairman, i would ask unanimous consent the remainder of my opens statement be placed
in the record at this time. >> without objection. so yielded. >> i yield back. >> thank you. at this time we would like to turn to our first witness, treasury secretary geithner. it is committee policy that all witnesses are sworn in. so, mr. secretary, if you would stand and raise your right hand. do you slum olemnly swear to te the truth, the whole truth and nothing but the truth? >> yes, sir. >> let the record so mr. geithner has been duly sworn. >> chairman towns, ranking member issa, members of the committee, thank you for the opportunity to temperature before you today. i welcome the committee's attention to this issue. and we will continue to work closely with this committee, with all other oversight bodies -- >> mr. secretary, pull the mike just a little closer. we're having a little trouble hearing you.
>> i'm almost eating it. how's that sound? >> our sound system isn't that good around here. >> i don't think i can make it any closer. i want to make sure that the american people have a comprehensive view of the actions we took to end this financial crisis. deciding to support aig was one of the most difficult choices i've ever been involved in in over 20 years of public service. the steps that were taken were motivated solely by what we believed to be in the public interests. we did not act because aig asked for help. we did not act to protect individual institutions. we acted because the consequences of aig failing would have been catastrophic for our economy and for american families and businesses. more than a year removed from that terrible week of september 2008, i believe that the government strategy, and it was the government strategy, was the
best of the available options and will ultimately cause the taxpayer far less than many fears and far less than many alternatives many people suggest today would have been bet are. and importantly, if you join with the president in adopting his proposed financial responsibility fee, american taxpayers will not have to pay one cent for the actions we took on aig or the actions we took with the authority congress gave the administration to stabilize this financial crisis. aig's problems became acute just a few days before lehman declared bankruptcy. at that time, our financial system and our economy stood at the brink of collapse. the banks and financial institutions that americans rely on to protect their savings to help finance their children's education, to help pay their bills were at risks in which few americans had ever experienced.
the banks and the financial markets that businesses rely on to meet payroll, to build inventory, to fund new investments, to create new jobs, were threatened like at no time since the great depression. across the country, across the united states of america, people were rapidly losing confidence in our financial system, and in the government's ability to safeguard their economic security. in the midst of this storm, aig posed a much greater threat to lehman. aig was much larger it was spread across the globe and its failure would have been far worse, hitting americans in ways lehman could not. aig was one of the largest life and health insurance companies in the country. one of the largest property and casualty insurers providing insurance to 180,000 small businesses and other corporate entities, which together employed about 100 million people. aig had sold products to protect
local and city governments, pension funds, and thousands of public and private companies. through guaranteed investment contracts and protection for 401(k)s, and as problematic, aig engaged in a broad range of financial activities that strayed well beyond traditional insurance businesses. using a credit rating based on the strength and profitability of its insurance companies, it had become one of the largest providers of complicated financial products in the world. it made hundreds of billions of dollars of financial commitments without the resources to back up those commitments. aig should have never been allowed to take those risks. but it was. its insurance regulators in 20 different states. the regulators in other countries responsible for overseeing their international activities, and its holding company supervisors, the office
of supervision did not act to constrain the risks aig was taking. important to recall that the federal reserve was given no responsibility and no authority to contain risks that aig was taking. no one acted to constrain risk taking by aig and none of those regulators in the moment of crisis had any ability to respond to its failure. the government of the united states did not have the ability to seize aig and wind it down in an orderly way as the fdic can and does for banks. neither the bankruptcy code nor insolvency procedures for insurance companies could have handled the job, and there was no way to draw a line around aig and prevent its failure from wreaking havoc across the system. the federal reserve was at the center of response to the crisis, because it was the only fire station operating. the federal reserve faced a
terrible choice, to support aig, butting billions of taxpayer money at risk or let aig fail and cause catastrophic damage to the economy. we were not willing to accept such a catastrophe. so just four days after aig was drawn into that crisis, the aig crisis, we extended aig a line of credit secured by its insurance businesses. in return, the taxpayer took about an 80% stake in the company and began the process of restructuring management and the board and the firm itself. that initial action helped stem the bleeding for a time, but given the massive losses aig faced and given the force the storm moving across the global financial system, it was not enough. and we had to work very quickly, almost from the beginning, to design and implement a broader, more permanent restructuring. aig needed capital, not just a line of credit.
and aig's vulnerability to future losses to the bleeding of cash had to be reduced. on november 10th, the federal reserve and the department of the treasury jointly announced a series of steps designed to stabilized company. the treasury invested $40 billion of preferred capital under the authority congress provided the executive branch under the t.a.r.p. and the federal reserve helped establish and fund two entities, called maiden lane two and three to purchase a range of assets from the company that were threatening aig's financial solvency. maiden length free in particular has been subject appropriately of a range of questions about how we treated firms that had brought these insurance -- bought these contracts from aig. i want to make this very clear, in this effort, our objective was, as always to get what was, to get the best deal for the american taxpayer and we faced a number of options.
if we had let aig default on the contracts, aig would have gone into bankruptcy triggering all the disastrous economy consequences we had feared since september that led the government to act initially. if we continuesed to lend aig money to meet these obligation, its growing debt would have led to a credit rating downgrade, bringing down the firm itself. and putting more taxpayer dollars at risk. if we had tried to force counterparties to accept less than they were legally entitled to, market participants would have lost confidence in aig leading to the company's collapse. the counterparties could have refused, could have kept the billions of collateral already taken. taken the securitieses they already had and sued aig for breach of contract. we did not have the luxury of time, could not engage in protracted negotiations. aig's financial position was deteriorating rapidly day by day. the prospect of failure was imminent. so we restructured those contracts to stop the bleeding
and potentially recover some value for the taxpayer in the future. now, although the government still faces the risk of substantial losses in its overall exposure to aig, we expected this transaction, the one at the heart of so much controversy, to be paid off in full with interest generating some profit for the american taxpayer. now on november 24th, after president obama announced his intention to nominate me for secretary of they and after broad consultation with the chairman of the federal reserve and others i decided to stay on as president of the new york fed on an interim basis but withdrew from monetary policy decisions, policies involving individual financial institutions and day-to-day management of the new york fed. i had no role before or after november 24th in making decisions regarding what to disclose about the specific financial terms of maiden lane two and three and payments to
aig counterparties. mr. chairman, the broad strategy in a the government adopted to attain this financial crisis has been remarkably effective at stemming the crisis, breaking the momentum of the crisis and repairing the damage. and this has been achieved at much lower cost in taxpayer resources than many people anticipated. confidence in costs for consumers, households, municipal and state governments have fallen dramatically. the support for aig in the context of the broad strategy was essential to achieving this early beginning and recovery. banks have already repaid two- thirds of tarp investments. the only support this administration provides banks
is $7 billion to regional small community banks. more than 75% of the emergency guarantees i inherited coming into office have now been shut down and closed. the financial system has fallen by over $400 billion. those are real resources we can use to meet many other challenges facing the country. taxpayers will recoup every penny of potential losses under tarp. the financial system is now in a position where it can provide credit necessary for economic growth, and that is essential to lay the foundation for job growth and long-term prosperity.
you should be, if you are outraged by what happened with aig, then you should be deeply committed to financial reform. the united states of america should never have let institutions like aig take on a leff of risk that could threaten the stability of the financial system. and the government of the united states should never have been in the position going into a crisis of this severity without the basic tools able to contain the damage and protect the taxpayer. so i hope you will join us in working to put in place a strong package of financial reforms that will protect consumers, protect investors, protect the taxpayer and protect our economy from excessive risktaking by financial institutions, and mr. chairman, one final thought. the public servants involved in making these decisions acted solely in the public interest. acted solely in the interests of the american taxpayer.
they are dedicated americans who cling bring to government service enormous experience and the highest integrity. i would never and they would never be involved in a benefit for private benefit and not the public's interest. the decisions we made together regarding aig was enormously consequential, terribly difficult and with controversy with each of the institutions responsible, and for that reason they were subject to enormous care and deliberation, but i believe a fair reading of history, a careful, fair reading of history of all the judgments we made will demonstration that the actions we took, and i was there, were essential to preventing broader catastrophe and the solutions we took reduced the ultimate cost to the american taxpayer and the american economy is much stronger today as a result. thank you very much. >> thank you very much, mr. secretary. let me begin by asking a couple
questions. were you involved in any discussions with aig or your staff involved where you discussed what aig should or should not disclose to the public? >> mr. chairman a i said i had no role in making those decisions. but as the record shows, and the record for the committee shows, a large number of people at the federal reserve bank of new york and the federal reserve board in washington played a very active role in thinking through those difficult choices. >> but i'm not sure i got the answer in. >> well, let me say it again. i personally played no role before the 24th or after in making those decisions, but you asked whether any employees of the new york fed did, of course, they did. >> when you were the president of the federal reserve bank of
new york, when did you recuse yourself from matters involving specific companies and why did you recuse yourself? >> on november 24th, the president announced his intention to nominate me at secretary to the treasury. that forced me to make a set of decisions about what was appropriate for me to do given the unique circumstances of that time. and after consulting with the chairman of the federal reserve, with the chairman of my board, with my general counsel, and with a range of other officials, collectively we decided that it was in the best interests of the fed and the incoming administration for me to remove myself from day-to-day involvement in the fed's policy issues, to leave that responsibility to my colleagues at the new york fed led by the executive of the first vice president of the new york fed, but not to step down as president. and we made that decision, because we wanted to make sure we were protectinged
independents of the fed and i was going to be spending, my necessity, a huge part of my time in helping shape the president's economic agenda and i was not going to be able to give the care and effort needed to carry on running the fed on a day-to-day basis. our judgment was that was the best decision at the time. i'm confident of that in retrospect. it was unique. it was unique, but i don't think there was a better alternative available. >> secretary geithner, i don't think aig's counterparties should have been paid 100 cents on the dollar, because in this e-mail we have here it's on the screen as well, you had some interests in how much the counterparties were owed. please tell the committee what impact the counterparties exposure had on your decision to pay 100 cents on the dollar. >> mr. chairman, i played no role in that decision. as i said in my opening
statements, as i testified before, we had to make a difficult choice about what was going to prevent the failure of the firm at least cost to the taxpayer. if we had broken those contracts, if aig had not paid them in full, if we had threatened default, if we had imposed haircuts, if we had selectively imposed haircuts that would have brought about a downgraded in its rating. the firm not able to operate and it would have collapsed. it was because of those choice wes took the path we did, to restructure the contracts and leave the taxpayer with some of the potential upside in securities. now, judging what is systemic, and why, and a failure of aig is a difficult judgment to make. there's no black and white choice in that context. but our judgment was, as i said in my testimony, that aig's
collapse would have dramatically magnified all of the effects you saw in the immediate aftermath of lehman's failure and in some ways more consequential, because they would have spread to a set of insurance businesses and that would have been much worse for the country. we were guided by a simple but terrible choice. how best to prevent default, at least cost to the taxpayer. >> thank you very much, mr. secretary. i now yield to the gentleman from california, ranking member congressman issa. >> thank you, mr. chairman and i'm going to pick up where you left off pretty much. secretary geithner, i think -- pardon me? i think you've answered that you played no role in the decision to not disclose the full payment, the 100% payment to the counterparties. that were you not part of what some of us called a cover-up.
is that right? >> absolutely. >> okay. let me follow-up, then. if after november 24th you were not involved in any activity, then one more just to be clear, did you ever become involved with the federal reserve's disclosure decision with respect to counterparty claims after your nomination as treasury secretary? in other words, have you ever participated or questioned or stayed involved with that? >> no, i did not. >> well, from what we were given by the fed, can we put up slide one. this e-mail from you says -- to william dudley, your replacement, on march of 2009, and it -- where's the line to read here?
okay. it's easier to read on the screen. where are you on the aig counterparty disclosure issue? long after you left, you made this e-mail. what was it about and what was the answer? >> well, congressman, as you know, this question of disclosure was the subject of huge amount of controversy. and most people -- >> you think? >> yeah. that's what my son says, and ai glee with you. most people feel, as you do, they said, why shouldn't it be disclosed? and as you know, in march, which i think, if i'm not mistaken -- >> march 15th. >> the time of this e-mail -- it had been subject to testimony by the vice chairman of the federal reserve and the federal reserve was facing a huge amount of pressure are and attention over what it disclosed. so i assume as you might expect in that context in asking them, where were they? were they going to change their position jthts okay. following up on your continued
involvement, and looking at them, where are you on this? do you believe that there should be full disclosure, at the president has said, these kinds of instruments should be public, essentially like any other instrument, the details of which should be available broadly? >> congressman, i am, i believe deeply that trust and confidence in the financial system requires disclosure and transparency. i believe that trust and confidence in the government requires that our actions be subject to full exposure and review by careful, independent analysis and i have been very, very supportive since i came into office and before to making sure we were bringing an unprecedented level of disclosure to the transparency around the actions ever the government. i'll give awe few examples. when i came into office we put the financial terms of all of the transactions we undertook under the t.a.r.p. in the public domain for everyone to see. one of the reasons our financial
strategy has been successful in bringing measured stability back to our system is we compelled the largest institutions in the country to subject their balance sheets to -- >> well, secretary, i appreciate what you're been doing as treasury secretary, but i have in front of me from the fed, marked confidential, the details of who benefited, who got these benefits, and currently it's locked up until 2018 by an order that wasn't negotiated and final until may of this year, may of last year, long after you were obviously able to be involved that locks up the public knowing be, and these are assets the american people paid for in full. right? do you believe we should know about these? >> congressman, that's an issue that should be directed to the new york fed and sec. you asked me a question, i didn't quite get a chance to answer before, which is, you said what was my view in effect.
>> yes. >> what the fed ultimately did. it's very important to recognize that the fed did in march of 2009 fully release information that counterparties and the details of that transaction, and based on what i know, i thought it was appropriate then. i know a lot of people said should that have come sooner? reasonably, people could come to that judgment, but i did not stand in their shoes at the time. >> now, as a member and the head of the new york fed and also i guess broadly a member ever the board generally, until you were sworn in. >> until time expired. >> finish up this question quickly, mr. chairman. >> you were aware that chairman bernanke in fact had in front, from the staff, a report that said, aig should be allowed to go bankrupt, which was then held back on september 16th based on his decision on september 15th not to disclose this for a broad
vote of the board, weren't you? >> i don't -- i'm not aware of the e-mail you're rearing to but aware the following. >> witness answer the question and then we'll move on to it next questioner. >> thank you. every decision we made in the days before september 16th and afterwards were enormously controversial -- >> no, no. the gentleman's time's expired. recognize mr. kanjorski k. i ask unanimous consent to get an answer to the question. >> each member that five minutes. we'll, without objection, the witness can answer the question. we're going to -- >> the only question we want, were you aware of that, if you weren't, do you think you should have been aware of that for a vote on september 16th. 2459s all. >> i was aware there was enormous concern both in the new york fed and at the federal reserve board about the choices we were confronted. as i said, there was nothing more controversial an difficult than i think anything we faced in this context and i think it should be reassuring and no surprise that those actions and the records will show that those
actions were the subject of enormous debate. and they were made before the 16th and afterwards and every time we faced the possibility of having to do more, we all stepped back and said, do we really need to do that? does that make sense? and that is a good thing for the country. you had people wil >> this question is from the fine poets of our era. we have come to bury caesar, not to praise him. i hope you appreciate the role of caesar here. last sunday, in the closing moments of a ball game, the quarterback made the decision to pass the football, and it got intercepted. a field goal won the game.
we concluded he did the absolute worst thing he could have done. i was on the committee and task force working with the secretary general of the federal reserve, and some of the members were awol for the votes needed to authorize the saving of the american economy. you have come to the conclusion that it is authorizing the secretary to take extraordinary action, hundreds of billions of
dollars of taxpayer money. this room today. we probably wouldn't be operating under the constitution that was saved as a result of that precipitous action you had taken in a very short period of time. is that relative think correct? >> i completely agree, and those members of congress on both sides the aisle that voted to authorize that action did the right and the necessary and the courageous thing, and they made it possible for my predecessor and the federal reserve to start to stabilize this thing. and it would not have been possible without that authority and without that legislation. >> i appreciate that. appreciat. i sometimes, as a matter of fact i took that argument to the white house. if i remember the president was not as outspoken and i was
convinced that in a democracy such as ours, both in bad news and dangerous news must be shared with the people. part of the problem -- we didn't share that news. even through today, most people in this audience and throughout america have no idea how close we came to total annihilation and disaster. is that correct? >> that is my view. for the first time since the great depression you were seeing a full-scale run and people were taking their savings out of banks and wondered whether a dollar was a dollar and whether it won worth a dollar. it was a basic break down in the fabric of our system. no recovery would have been possible without starting to stabilize the system and stem the bleeding and that was something that could not happen without the authority that as i
said, many people on both sides of the aisle voted to approve. >> there were discussions held at the highest echelons of the united states government and congress at that very time. as to whether or not law and order could be secured in the united states if we did not take action to assure people that the economic markets of the united states and the world would be held secure? >> i was not in the executive branch at that time, so i could not speak to that, but this was the gravest crisis we had seen and it was not going to solve itself. many people advocated we should let it burn itself out, but that would have been catastrophic. we are living with the consequences of the damage and the wreckage. the scale we face as an economy are rooted in that crisis and they illustrate the force of the pressure and the momentum that was already living with in august of that summer.
>> all decisions made in those fateful two weeks were not correct. >> congressman, i think every day about things we could have done differently and early. i think a great strength of the country is that people in the congress and independent oversight and financial crisis were all going to take a cold hard look at everything that was done. >> time expired. you may continue with your answer. >> that will give us a basis for fixing this mess and preventing it from happening again. we'll cooperate fully in all that effort. >> thank you. >> thank you, gentlemen. chair recognizes mr. burton. >> one of your counsels, james
bergen said on march 12th i don't know if there is any way to manage this so congress doesn't ask for it and won't release it. does he work for you or did he? >> yes, he did. >> does your legal counsel have authority to make comments and decisions without your knowledge? >> of course, but -- >> regarding something of this importance? >> as president and ceo of the new york fed, i was ultimately responsible. it's not a long answer. >> i want to know, do they have the authority to make these comment comments and decisions without you knowing about it? >> of course.
>> what's the date on there? on november 11th, when you were still at the fed, an internal memo said as a matter of course, we do not want to disclose that the concession is at par unless absolutely necessary. are you familiar with that memo? >> not with that e-mail. as i said, i was not involved about decisions about what to disclose about the transactions or the names of counter parties. i have enormous trust and confidence in the integrity and judgment of people who were. >> on march 15th, after that we had up on the board there a few minutes ago the e-mail to mr. dudley. he said where are you on the counter party disclosure? he said my understanding is it could come out as early as today. are you familiar with that? >> i don't recall his response and i don't recall my unit making fun of him, but now i see
it. >> you don't remember? >> no,i don't, but at the time there was enormous building pressure to disclose and they did disclose. >> do you maintain you weren't involved in any of this? >> absolutely. >> were you aware that all of these organizations around the world, society, goldman sacks, do i have bank, ubs were all getting 100 cents on the dollar. >> absolutely. >> you were aware of that? why wasn't this disclosed back in november when you were the head of the fed? >> again, that is a question you need to direct to the people responsible for that judgment. >> you were the head of the fed? >> i was the head of the fed of new york until i was confirmed for this job. >> why wouldn't this have been
disclosed back then? what was this, a group? >> i don't know how to say it differently, but when the president announced his intention to nominate me, i withdrew appropriately from a range of institutions in part to protect the fed so i could do my job of helping the president prepare for how to fix the mess we inherited. because of that, i was not involved in the decisions, but the people who made those decisions did so -- >> this happened on november 11th before you withdrew. >> what happened? >> this knowledge. >> mr. chairman, as i inside my testimony -- >> why wasn't it disclosed back then? >> we didn't face that choice then. i was directly involved in the judgments we made. >> you didn't face the choice back then? >> no, we didn't. the choice i was deeply involved in fully supports and the decision to restructure the
contracts in way that was better for the taxpayer. i was supportive and fully aware of that. >> it stretches for us to believe you had no role and didn't know anything about this when your attorneys and people who worked for you were sending e-mails around the place and you were the head of the fed and didn't know about it. it doesn't make sense to me. a lot of my colleagues feel the same way. >> we were involved in an extraordinarily complicated range of things. the choices around disclosure that understandably were the focus of so much attention. >> do you think there should be an audit of the fed. >> you may answer the question. >> i am supportive as part of
financial reform of making sure the fed is subject to a level of transparency and disclosure and oversight and the chairman of the federal reserve worked with many members in helping to shape reforms to achieve that outcome. >> i will take that as a yes. >> i want to be protecting the policy issues. it would be a deep mistake for the country to threaten that independence. >> the chair recognizes mr. cummings. >> secretary geithner, i don't know if you realize that, but the democrats asked for this hearing. i asked for this hearing. did you know that? >> i believe i did. >> when i asked for the hearing, i must tell you that i was extremely concerned and i was questioning whether you had acted appropriately. i think anyone who read headlines when this hearing was requested would have come to at
least the question mark. you score you would tell the truth, is that correct? >> i did. >> i assume your written statement is a statement in which you would also swear to? >> absolutely. i'm trying to figure out as far as the initial getting involve and what you did, i don't know what anybody else would have done. i don't think we had a choice. or did you have a choice? let me say that i think we did the right thing there. this is where it gets sticky. we also have a situation, secretary geithner, where the american people are concerned that a lot is being done for wall street, but not enough being done for main street.
you understand that? >> absolutely. >> one of the interesting things is you talked about how you had not taken the action from the beginning and how it might have affected main street. the constituents of all 435 members. you tell us if you had not taken action, how might it affect students in my district or businesses or whatever. can you tell us that? i don't think that is getting through. >> thousands of more factories were to close their doors. millions more americans would have lost their jobs. the value of america's houses and savings would have fallen either further. people would have rushed to take their money out of banks. it would have brought about utter collapse. i don't know a better way to say it than that. if people wonder if that was true, all they have to do is look back at what happened in the fall of 2008.
you saw the value of american savings fall by almost 40%. trillions of dollars in lost wealth and millions left their homes. thousands and thousands of businesses had to close. that's what happens when you let a crisis get out of control. government should never let that happen. if they don't act and this is important for people to understand. people think it's unfair for the government to act to rescue a financial system. you cannot help an economy recover and create jobs. you can't preserve the value of people's savings without a functioning financial system. >> another moment when we requested the hearing that i was concerned about is the counter parties. they are looking into the whole
issue. there have been comments that the counter parties were tenuous and had they not been paid in full, they risked collapse. was this a real possibility. >> in my judgment that was not the most important risk posed to aig and posed direct losses on the major banks. those losses were not the issue. they would not have been significant. the threat to the system and this was a threat to all institutions operating was the threat of collapse to the system as a whole. you would see the crisis spread to insurance companies around the world and seen investors >> when the public has so much invested in a company, isn't it better to err on the side of transparency, mr. secretary, as
opposed to keeping things secret? >> of course. >> so which decision to not be as transparent -- what would cause that? >> there are some situations where it is necessary for there to be either a light or a gap. like in national security, like in law-enforcement. you need to be careful about how you managed that. but we would not want to disclose information that would be bad for the taxpayer, make it hard for him to recoup investments.
i completely agree that they are essential. the american people deserve it and we have been very effective in bringing an unprecedented level of security. the level of transparency and disclosure. it's kind of interesting the way you framed your testimony and your involvement and the decisions before the committee today. you tried to give the impression that huh to do what huh to do because of the financial situation. that's pretty much what you said, right? >> absolutely. you made the decisions together
and set a dividing line of november 24th. that's when you received word you would be nominated for treasury secretary? >> that's when the announcement was made. you tried to distance yourself from decisions made before that, but in fact -- i had not tried to distance. i tried to take full responsibility for all those decisions. >> okay, then you also were aware when the new york federal reserve board ultimately selected november 3rd, 2008 to purchase the underlying assets? >> absolutely. >> you were. >> i take full responsibility. >> you had no knowledge of any cover up, right? or intent not to give full information and disclosure. >> of course not. >> so you took credit for the
decision, but not the cover up. >> no, no. >> you distanced yourself from any cover up before november 24th and then of course you were out of the picture from november 24th forward? >> i am not trying to distance myself from anything. i will take complete responsibility for decisions i played a role in shaping, including all decisions up to the 24th in this case. i'm happy to take responsibility for all decisions i made since then too. >> you were aware of 100 cents on the dollar? >> absolutely. >> and the risk posed by that offer. you knew about that, but you weren't attempting to cover up. that's your testimony. >> of course not. >> i believe either you made a bad decision there or in fact there was the attempt to cover up one of the biggest backdoor
bailouts in history. now you tried to frame it as you did it because you did it in the interest of the people and the failure of the system. i believe these are lame excuses. either you were in charge and did the wrong thing or participated in the wrong thing. it appears like when you were being confirmed, a lot of controversy surrounded your not paying taxes. you gave lame excuse then and i believe you are giving lame excuses now. my final question is, why shouldn't we ask for your resignation as secretary of the treasury? i didn't think you should have been secretary of the treasury when it was disclosed you didn't pay your taxes because that's the highest financial responsibility position in the united states government. why shouldn't you? >> that is your right to that opinion. i have worked in public service
all my live and have never been a politician. i served my country as carefully and ably as i can. it's a privilege for me to work with this president to help repair the damage that was here when we took office. i will do so as long as he asks me to do so to the best of my ability and with great pride in this country and in him. >> again, i think you are punning the blame and trying to position yourself. >> you don't know me very well. >> we are not getting the whole story. we are getting a lame story and a monumental backdoor decision of bailout for which the taxpayers will stay on the hook for huge amounts of money and even by estimates of the treasury, there will be billions from this deal which either you should have been overseeing and you said you had knowledge of and you failed to take steps to
further protect the taxpayer interest. you are either incompetent on the job or were not doing your job and that's grounds for removal. >> i was there and i know what i was responsible for. i take full responsibility and great pride in the judgments. >> the secretary may answer the question. >> he takes great pride. >> i do. i take great pride in the judgments. people have a right to disagree and go back and look at them with great care and analysis. i hope you will give the same care and judgment to looking at the decisions in retrospect with the benefit of hindsight that we gave in making the decisions at that time. >> thank the gentlemen. it's my time to ask questions.
mr. geithner, the new york fed agreed to goldman sacks demands for billions to settle counter party claims with aig. 100 cents on $1. goldman and aig were locked into the dispute and they would lose up to 2.5 billion. did you know at the time that goldman sacks concluded it would not receive 100 cents on the dollar in the event of default? >> i did not know and i don't know whether that's true or not. >> goldman said publicly they didn't need the government's money. it was fully hedged and would not be affected if aig defaulted. committee investigators learned that goldman's insurance policy would not pay in the event that the u.s. government bailed out aig. goldman's protection would pay only in the event that aig
default defaulted. they hadn't put that contingency. that failure put them at risk of losing the amount of disputed money when the government rescued aig. did you have knowledge at the time? did anyone at goldman admit to you or anyone working under you that goldman sacks was not fully hedged in the event the government took over aig and goldman was at risk of losing at least $2.5 billion if the government bailed out aig and opposed less than 100 cents on a dollar. >> congressman, i am not aware and i don't see how i could have been aware of the precise details of the hedging strategies of all those firms to the event of a default by aig. we made a very careful effort to try to assess working with the supervisors of all the
institutions and exposure to aig about the exposure. >> had you talked to lloyd? do you remember talking to him? >> in the goldman sacks case in particular because a lot of reports that were consequential, i asked what their exposure was and asked you to show me what the internal system reports showed about the committee. >> we will have a series of questions to submit to you in writing so that you will be given an opportunity to have an extensive answer. mr. secretary, when the government stepped in, there was one way for goldman sacks to get a piece of the 2.5 billion. that was if the new york fed voluntarily agreed to give it to them. if the new york fed had fought for taxpayers, goldman would have lost money they didn't have hope of recovering. the new york fed had a lot of
leverage. a lot of leverage to negotiate a reduction, but instead the fed took goldman sacks' position and settled it fully with taxpayer money. mr. geithner, under normal circumstances, goldman sacks would have had to sue aig in court to recover the disputed $2.5 billion to and settled for something less. isn't it true that they gave goldman sacks a better deal than they could have expected. any market player at any other time. >> if we had the ability like we have for banks to put them into an early process, we could have done many things. under the laws of the land, we did not have the ability. we faced a simple choice.
let aig default or prevent it. there was no way financial, legal, or otherwise we could have imposed haircuts, selectively default on any of the snugdss without the risk of downgrade and default. that is the only reason. they give a better deal than was delivered. at the same time giving no financial relooefr whatsoever to millions facing a foreclosure crisis. if that doesn't illustrate what the new york fed thought it was working for, i don't know what does. you may respond and my time is expir expired. >> congressman, that is not true and unfair to the public servants. >> what's not true?
>> what you said. >> what's not true. >> it is not true that the actions we took in aig were for the benefit of anybody but the millions of american who is at that point were suffering from the worst financial crisis since the great depression. the only way to help reduce and protect that damage was to fix the system and prevent catastrophic failure. that is the only motive that underpinned the government. >> i thank you very much. >> thank you, mr. chairman. mr. secretary, you talked about looking at these events with the ben fight of hindsight too. men who did were peter boone who is a researcher at the london school of economics and simon johnson, professor at mit. >> can you get closer to the mike so we can hear? >> simon johnson, a professor at mit and sloan school of management. they wrote in the new republic
magazine in the september 23rd issue, the fed may well mitigate our current crisis by sewing the seeds for the next one. in fact the fed has exacerbated the possibility of another similar or larger crisis. the way they put it, they said as a result unless real reform happens soon, we face the prospect of another bubble burst that will be more dangerous than what we have been through. i assume you know that the american people are very, very angry about the bailouts. the bonuses and salaries that have come about through what most people think is a big business. they feel this did you oply has been manipulated to allow mind-boggling salaries and bonuses and allow very few to
come out the free market system was not allowed to operate. it seems to most of us it is not capitalism to -- when government uses billions and billion was taxpayer money to prop up a few well-connected firms. that leads me to two questions. one, has the second, do you to think we should limit salaries and bonuses being talked about today with these firms that got taxpayer bailout funds? >> that is a very thoughtful question, you ask exactly the right question. you can try to let it burn
itself out, or you can act to prevent it. that will create the risk that firms can be saved from failure. that is at the heart of the financial crisis. it is irresponsible. the moral, it just, pragmatic fair jurors -- choice if you're a democrat is to act to protect the innocent. but as he said wisely, by definition that causes a risk for future crises. and that is what we all have a huge stake in trying to make sure that we not only limit risk-taking in the future, but that investors, equity holders, creditors, managers, and executives do not run these
firms with the expectation the government will be there again. the expectations that government will be there again. we do not have for institutions like aig. in proposals moving throughout congress that we can end this expectation of too big to fail in government assistance. if you look at what we have done, we have moved very aggressively to pull the government out of these institutions to make sure we are not a day longer than is necessary to replace the public capital with private capital. we have done that by forcing disclosure and firms to recapitalize precisely because we want to limp this and end this exceptional period as quickly as we could.
that has been very, very effective in ways that people on the right and the left should welcome. on the right it mean that is the government is out much more quickly than anybody expected. on the left people should know that we have far more resources available to help address the long-term challenges we face as a country to reduce deficits and meet the things we have to do to fix what was broken in this country. you asked a good question and i agree with the thrust of your concern. >> that was a good answer, but my 2nd question is do you think these bonuses and salaries should be limited in any way to these firms that did receive government bailout money? >> time expired and please answer the question. >> what happened to compensation across the country and in the financial system was catastrophic. it's judged in the way of a huge increase over decades. in the financial system, it was much worse. it was much more consequential.
it helped encourage a level of risk taking that brought the system to the edge of collapse. it is deeply important in the public interest of the country that congress legislate reforms that will change how bankers are paid. on the boards of these firms, they have to bring about much tougher limits and how firms are paid. that's important to do and hope we will have support in making sure we have the basis to go that. >> chair recognizes mr. lynch of massachusetts. >> thank you. mr. secretary, i'm well aware of your family's commitment to public service. it makes it more difficult in a sense, but to ask these question, but i feel that the conduct of yourself and mr. paulson were not consistently on the side of the american taxpayer. i will explain why and give you
two examples. we had the situation with bear stearns. the world is on the brink. we have a disaster. we are worried the about the system melting down. with your support and mr. paulson and mr. bernanke, we forced bear sterps's shareholders from a position i think that was a high of $172 a share in january, we forced them down to $2 a share because the american taxpayer money was in the bailout. that was something we supported by the fed, by the treasury because we felt that because the taxpayer was bailing them out that the shareholders should not be held harmless. you have a different situation here. slightly different. we have aig going under.
these are credit default swaps. the money is going out to the counter parties. this is a pass through. the folks on the other side are goldman sacks. largely that's a principal beneficiary of all this. we don't negotiate a nickel, not a cent off of what they are getting. you are in the same position, supposed to be negotiating on behalf of the american people. you are saying oh, the regulations were different. let me tell you something. we were changing the rules every single day. we were taking action with the fed on the extraordinary circumstances. you had every opportunity, every opportunity to weigh in on behalf of the american people and make these people take a new deal. make them take a cut. you scalped the folks on bear stearns two cents on a dollar they got. the folks at goldman sax got 100
cents on a dollar. that is unacceptable. totally unacceptable. you had the opportunity and i think it was a terrible decision on your part and also on mr. paulson's part and he is up later. we will talk to him. how do you expect to -- look. the thing about changing over to the obama administration, you have the same people who will rely on you. when you are in one job and the american taxpayer is relying on the other job. i don't see a conflict. i really don't. you could have done the right thing by the american taxpayer because their money was being put into this deal. it stinks to the high heaven happened here and i don't like it. to top it off, the disclosure was not there. at the proper time to tell the american people and the congress what was going on.
that is inexcusable and makes me doubt your commitment to the american people. it makes me doubt mr. paulson's commitment to the american people. i think the commitment to goldman sacks trumped the responsibility to the american people. >> i respect your opinion. i know you hold this opinion strongly, but i completely disagree. the american taxpayer would not be better off if the government made it possible to get more money. the american taxpayer would not have been better off if we had let aig default. none of us did anything. >> there is a difference between giving them 100 cents on a dollar and letting them default. you are creating new situations every week. we are letting the folks go to the discount window and changing the rules day by day and had the banks at a position where we
could have exercised a lot of leverage and you chose not to do it. >> i disagree with you and i try to -- >> doesn't mean we have to pay them 100 cents on a dollar or let them fail. there increments here and you never used that leverage. >> not this n this case. >> in this case exactly. under 13-3, we could have taken different steps. >> 13-3 was for people to understand. it was authority given to the federal reserve to protect the financial system from broad based runs to lend against collateral to make sure they could fund. we did that because of the catastrophic damage caused by decades of previous financial crisis. we used that authority because we thought there was no other choice and -- >> when hank paulson said you
are taking bailout money, he could have done the same thing. i yield back. >> if it would have been possible, we would have done it. why would i want to be sitting here before you today having to defend actions that look like they could have been avoided. there was nobody part of that decision. that would have been impossible. i try to be as careful as i can in explaining the reasons why it was not possible, but it comes down to the choice, if you are prepared to default, you can impose haircuts. if you can't accept the consequences of default, you do not have any leverage. it would have been vastly more expensive to the tax bill and much more damaging to people you and i care about and wake up every day is i want to assure you from
your answers today that you are absolutely a politician. and let me tell you -- >> do you mean that as a compliment? >> let me tell you one of the answers that trouble me about the issue in your written testimony about the tame concluded a.i.g.'s failure would have been catastrophic. you go on to talk about the insurance arms of a.i.g. this is not the first hearing that this committee has had or other committees. and you know that we're aware of the independence of the insurance arms of a.i.g. we've got of aig.
catastrophic effect of all of the insurance companies that were on edge, they weren't bailed out. >> that's not true. maybe this is helpful to go back a little bit. when aig came to us that weekend, remember the fed is not there regularly. they had no responsibility of authority over how they ran their business. that was the province of other regulators. it was inconceivable to me that this was a problem we would have to try to solve. we have all the people we could including the commissioner and his staff and other people could look at. >> did you bail out the life insurance part of aig? did you bail out the life insurance arms of aig? >> i wouldn't use that term. the actions we heard. >> did you bail out the health insurance part? >> the actions protected those companies from the risk of failure. >> the testimony we received
previously from those looking at those arms was that they were substantially sound and the catastrophic effects that you list, we would have all been concerned about. >> i disagree kpleemtly. people can come to different judgments, but the people who are responsible had no idea and you could note sprayed those companies from the companies that had taken risk. the tragic thing in the structure is they were so closely linked, they couldn't separate them. why would we not. if it was possible to separate the place that was taking the firm down to separate that cleanly, we would have done that in a second. much of what the management is trying to do today still 15 months later is designed to achieve that objective. they were tightly connected and the insurance supervisors who
were responsible did not know the extent to which the financial basis of the insurance companies was so connected to the holding company and the aif narks had taken the risks. >> as we went to the bailouts and the funds received, one of the biggest concerns i had through all of the process, i believe when it becomes public and it hasn't yet. we don't have everything from you. this may turn out to be the largest theft in history. there were parties that were participating with the securities into defrauding mr. and mrs. american citizen receiving a loan that was negative in loan to value ratio and a greater risk than was being reported as the mortgage-backed securities and credit default swaps were passed up the chain.
a;@ @ @ @ rp@ @ @ @ @ @ rr@ @ @) that there was a significant @) amount of defrauding going on and people need to be held accountable. and i don't think in your system you're taking into conversation those who were bad actors. >> i completely agreed that this country allowed under the laws of the land a terrible erosion in underwriting standards, a terrible amount of predation and abusive practices in mortgage lending and consumer finance. we should never have let that happen. and i hope you will join with us to pass reforms that will prevent that from happening. >> let me just say something to all the members. you know, right now we have like 30 some members that still have not had an opportunity to
question. so we are going to have to stick to the time. so i want you to respect that. i notice that a couple of situations where you're going over. but i'm saying to you when the red light comes on, that's it. so i want you to know, we're now moving to mr. quigly of ohio. it. i want you to know we are now moving to mr. quigley of ohio. i'm sorry. mr. quigley of illinois. is he here? >> thank you, mr. chairman. mr. secretary, can you provide for the record a copy of the refusal agreement you signed at the new york fed. >> i did not sign a refusal agreement. i withdraw from the policies of the new york fed. my colleagues in washington and new york can attest to that. >> there was no formal agreement?
>> no. as i said what i did is withdrew from and this was important to do. a sitting president in the new york fed be nominated secretary of treasury. i withdrew from involvement on monetary policy decisions. i withdrew from all decisions about these individual cases involving the financial system and day to day management and that was the right thing to do at that time. >> thank you for clarifying that. number two, a lot of people think that the president of the new york fed works for the u.s. government, but in fact you work for the private banks that elected you. >> that is not true. >> can you provide for the record a handful of bankers that elected you in 2003 please. >> that are say matter of public record and of course we can do that. >> thank you very much. >> can i just say, what you said was not true. i work in the public interest and officials of the federal
reserve work for the public interest and the government. >> the people don't elect you. the heads of the feds around the country don't elect you. it's the individual who is sit on the board of the new york fed that elect you, is that correct? >> it's slightly more complicated than that. what the congress did is set up a system where the presidents of the banks are oh scomblerk approval of the chairman of the board of governors in washington for them to serve. it is a delicate balance of checks and balances and congress designed that system. >> it is largely private banks that elected you and i would like you to provide that for the record. the cleveland fed is not equal to the new york fed. i'm interested to your answer for the record. number three, goldman sacks was the largest recipient of funds in this counter party arrangement. now as treasury secretary, your chief of staff is the gatekeeper
for access to you. could you please provide his name? >> his name is mark patterson. >> thank you. >> for whom did he work before you selected him as your chief of staff? >> he worked for the president's transition team. >> before that. which wall street firm? >> this is a matter of public record and you know the answer to this question. he worked for goldman sacks. >> thank you very much. you answered my question. let me say this. you have answered the question. you answered the question. thank you. the aig transaction was disturbing to many observers. why did your government not require the bank creditors to take the lead and bear some of the cost in any plan to stabilize aig? you in effect nationalized the company and let the bank creditors off the hook. why did you as president of the new york fed not work out an arrangement to remove the london
unit from the company rather than allowing the unit to infect the entire company. >> if we had the types of bankruptcy procedures we have for banks, it is possible that ultimately we could have done that. if it would have been easy and cheaper to separate the riskiest parts of the firm from the healthy profitable insurance companies, we would do that. in fact that is the core of the restructuring strategy they are undertaking. that choice was not available to us at the time. if it was possible, of course we would have done that. because we didn't have those tool, we did not have that choice. >> your phone logs from the subpoenaed material this committee requested which i would like to insert in the record, thank you, mr. chairman. the critical period when the bailout occur and just after
september 15th when the three major agencies downgraded. aig's credit rating, you made hundreds of calls. the most, over 225 to secretary paulson, then secretary of treasury. what firm did he work for prior to his appointment? >> he worked for goldman sacks. >> as i understand it they got most in counter party payments of any domestic institution, is that true? $14 billion? >> i don't know if that's true. >> the most was from an international firm, but goldman sacks was number one. you made about a hundred calls to ben bernanke, but the next number of calls, you made 103 to a man named dan jester. what firm did he work for? >> as you know, he worked for goldman sacks. >> thank you.
i will have additional questions with regard to who you phoned and we will place that in the record. thank you. >> can i say one thing in response? it's very important. congressman, you are suggesting that the people involved in this were not acting in the public interest and suggesting that they were working for the private interest and not the public interest. that is not true. i would never and i believe none of those individuals would ever be part of a decision like that and these were people of enormous integrity and operating under exceptional circumstances with no precedent, doing the best they could for what was in the public interest. it's important to say for the record. >> i must move. the gentlemen from georgia please. >> thank you, mr. chairman, secretary geithner, when did aig if you can give usa i date. when did they call and say we need money?
>> formally i think on that friday. i think it was the friday in september. the 11th or the 12th, i think. >> it was a friday in september. at the time there were advisers of aig that were also advising the new york fed. were you aware of conflicts among the advisers or were there discussions about what conflict this might bring about? >> when they came to us and started to walk us through their financial condition, they had advisers with them. they were also in discussion with others who were not with us at that time. >> when did that dollar amount
become after the discussions. at what point in time did a dollar amount drive that? >> the initial terms of the loan? we had that decision probably just on the eve of the formal agreement. >> okay. do you remember that date? >> the 16th is when we concluded this. it would have been just before that. >> let me ask, on the counter parties, when was that meeting with the counter parties to discuss what the payment might be to them? do you remember those dates? >> i do not believe there was a meeting with counter parties. what i asked my colleagues to do after looking at a range of options is to approach them individually and try to negotiate consessions. >> there was no actual meeting where the counter parties were
in a room? >> i don't think -- i would be happy to check the record, but i don't believe they brought them in a room together. >> when you say the colleagues, they worked for you and were under your direction? >> absolutely. they acted in my direction. >> you were aware of the 100% payment to the counter parties? as i said many times and we supported my decision to -- that's a yes. >> in each one of the meetings to negotiate, we weren't able to negotiate any of them down? these were separate meetings, i guess. did you question the negotiating skills of some of these people? >> these were again very talented people with a lot of experience who knew how to do this and many had done this for
a living. again, unless you can threaten default or threaten to pay below, you understand this. you don't have leverage in the transaction. if we negotiated with the threat, our concern was that would risque downgrade with the collapse. >> do you know if aig approached any of these people about any type of negotiations about what the sum may have been? when the government gets behind it, it takes away the skills. >> you are exactly right. if i'm not fis maken, aig had probably tried to do that before. i can't speak to that today. >> these people with these creative swaps were all bright people and knew the high risk of what they were getting involved in. did they not? >> the tragic lesson is lots of bright people with lots of
experience who should have known better made bets on the future of the country that assumed house prices would never fall. the judgments aig made were similar to the mistakes the agencies made. >> these people were making a lost money off of this. this was a high risk, high reward business, right? >> the people at aig? absolutely. >> it's obvious that aig is a bad deal for the taxpayers. is this deal being renegotiated and is anybody at the treasury working with aig to try to renegotiate this deal? >> it is a better deal for the taxpayer than the alternatives and is proving in many ways far better. as i said, the government is still exposed to substantial risk of loss. we have a new board in place. >> we have one more question. >> the gentlemen's time has
expired. the gentlemen from maryland is recognized for five minutes. >> as you indicated, the previous d main station came to the country and said we faced an extraordinary circumstance and fail tower act. it would hurt people on main street. innocent bystanders in the process. you took the action that you did and you properly said we need to learn the lessons from what happened. the administration and the congress have been working to do just that. here in the house, we passed a wall street accountability bill to try to do two things. number one, provide the fed and others with the tools to make sure you don't have a situation where a firm becomes too big to fail in a manner that it hurts innocent people. 2nd, to make sure there is a fail safe. if that happens, there is a pool of money raised from the banks and not from the taxpayers to
pay for the rescue. number three and the president proposed this, a fee on the biggest financial kmugzs to recover every penny of t.a.r.p. money. that includes every penny extended to aig and every penny extended to the counter parties. on the house we passed a bill and had an amendment offered by congressman gary peters of michigan. i have got it right here. it says that fee will remain on the biggest banks, not just to capitalize a fund to be used in the event of future problems. they have to pay for their own. you keep that fee on until you recover every penny. i must say i was surprised. i wish all our colleagues on the
we believe it is very important to make sure we work to limit risk take it clear that we were going to be able to let firms fail without costing the taxpayers money and costing collateral damage. i want to say one thing. the cost of the american people cannot be captured in the simple financial costs of the t.a.r.p. we were protected if congress passes the fee. the cost is much more damaging.s of the losses under t.a.r.p. but we have a great responsibility and obligation to reform this system so they're not in that position again and the least we can do is to make
sure the tax payers aren't bearing the direct costs that we took in aig and elsewhere. [ inaudible ] >> if we adopt the amendment the house has taken, or the president's proposal is very similar, the moneys that are subject in the conversation today about the taxpayers and aig -- fully recouped and returned to the -- on behalf of the taxpayers. >> that is exactly right and better than that, though, congressman, because the
specific transaction that is subject of so much attention and appropriately in this hearing themselves are likely to earn the taxpayer modest profit. but the government is still exposed to some risk of loss on the rest of its investments, but if we adopt this fee, the tax payers will not bear a penny of that cost. >> the chair recognizes mr. -- >> thank you. just to be clear there are $68 billion worth of loss, $30.4 billion associated with this aig deal we're talking about now. so there is significant loss to the taxpayers already through t.a.r.p. and so this new tax is simply about making up for that revenue. mr. secretary, do you support hr-4173, the wall street reform and consumer protection act? >> congressman, i'm not sure of the precise legislative amendment you're citing. >> it is not an amendment.
it is a bill sponsored by barney frank of massachusetts, the chairman -- >> the conference of financial reform law that passed the house in december? >> yes. >> yes. >> yes, i support that. >> and do you support the volcker rule? >> absolutely. that -- what the president proposed is that working with the bill that passed the house, which included a provision that i think mr. kanjorski authored to give the government ability to limit risk taking by banks, that we make sure those translating to limits that will actually prevent risk taking in the future. >> so it is consistent with hr-4173? >> absolutely. that bill and this is very important for people to understand, that bill -- >> i understand. i'm on the committee. >> -- included a provision that would give the government the ability to limit risk taking in a way to help prevent future crises. >> wasn't it your legislative staff that really worked to change the kanjorski amendment? >> well, again, we worked
closely with members of that committee on a whole range of those provisions to make sure that they met the intent -- >> no you're not answering my question. >> in that amendment, absolutely we worked with them on that amendment. >> you worked with them on that amendment to limit it in terms of its reach. >> no. we worked on it to make sure it -- >> okay. so in essence the volcker rule is something you support? >> yes. >> okay. you testified last month before the joint economic committee, quote, i would not support reinstating glass to goal and i don't believe the end of glass to goal played a significant role in the cause of this crisis. do you still stand by that statement? >> absolutely. >> how do you reconcile that belief with this rule that in essence limits or forces banks to divest in hedge funds and private equity and all these other additional elements that is in essence glass to goal.
>> what glass siegel did was to allow banks to underwrite equities and to engage in a whole range of other types of financial act siftivities, insu as well. >> it limited that ability, to be clear. >> and we support, as i think the bill that you started did support, it did actually provide authority to limit a set of activities so that the access to the safety net is not subsidizing excessive risk taking. it is a simple principle. does it dial back some of the reforms? it does do that, but it is not what people typically refer to as glass siegel. >> so it also says if you engage in a certain type of -- if you have a certain form, meaning a bank holding company, you have to adhere to certain rules, correct? >> that's right. >> okay. you also testified before the financial services committee of which i sit last year that, quote, financial products and
institutions should be regulated by the economic function they provide and the risks they present, not the legal form they take. >> that's right. i agree with that. >> and so you support a rule that says, based on a legal form you take, you have to adhere to these principles? how do you reconcile this? >> they're perfectly consistent. but let me state the basic principle again. >> they're perfectly opposite. >> no, what we're saying -- this is important for people to understand, if you are operating in the financial markets, you're helping companies raise credit, raise capital, you're helping them make markets work, you're prying liquidity to markets. shouldn't matter to us or the american people whether you call goldman sachs or whether you call jpmorgan. you should be subjected to a set of constraints on capital, on leverage and how you're funded that limit the amount of risks you take. if in addition to that you want to own a bank and operate a bank, then there is a set of
other limits that we think are good in the public interest so that, again, you can't take advantage of that access to the safety net to subsidize a set of activities that are not essential to -- >> but bankly you're saying, if you just simiply drop the bank holder label -- >> no, that would be a mistake for the country. maybe this would be helpful of me to say to you, we will work very closely with members on both sides of the aisle to make sure that this legislation results in a set of sensible constraint and risk taking -- >> that would be something new -- >> gentleman's time has expired. >> -- over the last 13 months because you have not reached out to republicans to be clear. >> that's not true. but i'm happy going forward that as we try to give the force of law, reflect them in regulation, we do so carefully with full consultation. >> the gentleman's time has expired. and the chairman recognizes himself for five minutes.
thank you, mr. geithner, for being here. i just want to remind my colleagues on both sides that the whole request for the bailout that had to be administered by the treasury department was at the request of then president bush. and, second, i understand your testimony that the people responsible for administering this made the best decisions they could under the circumstances. i just want to ask a couple of questions, though, that start with one of the statements you made, mr. geithner, about the effect of the actions taken has stabilized the financial system. i'm not here to argue that. the question i have is has it helped the broad main street economy? and there are many who believe, and i'm among them, that wall street got out ahead of itself, got in the business of self-enrichment rather than financing american jobs,
american entrepreneurs, and actually transformed itself from an entity that was about creating jobs into the greatest job killing machine in the history of the country. there is two things that i want to ask. one is the bank fee that president obama has endorsed, you see that as essential to have the folks who were largely responsible for the financial meltdown pay the cost so that it is not the taxpayers. is that correct? >> absolutely. in the reforms we proposed to the congress back in june, at the center of that proposal was a basic principle, which in the future government exposed to risk of loss the banks pay. in the t.a.r.p. legislation you refer to, there is an explicit provision that puts an obligation on me to propose ways to coupe the costs and we propose that in the president's financial responsibility -- >> and i support that. i'm glad you're doing it. second, there are a number of us, well over 60, that are
supporting a tax on wall street bonuses. and i just want to get your opinion on this and i'll give an example of the kind of conduct that was allowed to occur. it has been reported, as you know, in "the new york times" that goldman sachs had a department bundled subprime mortgages. it then had folks who advocated to the rating agencies to give it the highest rating possible. it then went to its trusted clients and sold those and then went to its trading desk and sold them short. is that the type of conduct that you think should be monitored and curbed by any financial regulatory monitor? >> congressman, i believe deeply that we need tougher rules, enforced more effectively and evenly, to make sure that consumers and investors are not taken advantage of and the system is not so fragile that government has to step in the future and take this enormous risk of loss.
>> let me just ask you about the bonus tax because i would be interested in this. firms like goldman receive t.a.r.p. funds. they receive low interest money from the open window of the federal reserve and, of course, goldman and other firms receive direct pass through payments when aig was bailed out, correct? and when mr. paulson, your predecessor, was on the phone requesting this money, this was not anything that you made the request for, he assured us that wall street had learned its ways. goldman and the other wall street firms are back to their old ways. they have been so successful and let's give them credit, they're good at what they do. the question is whether what they do is good for the economy and for main street. they have been able to set aside 140 to $160 billion. do you have an opinion, for bonuses, they could have lent that out, could have added to their capital base and the third choice, they could have put it in their pockets which is the one they have chosen, do you think in view of the fact that much of their profit was made
through taxpayer generosity it would be appropriate to tax bonuses as i suggest in my legislation, the 15% above 50,000? >> of course i would be happy to take a careful look at that legislation and talk to you about how best to deal with that. the basic principle that we support fully is to make sure the american taxpayer is not exposed to a penny of losses from the actions the government had to take under the t.a.r.p. authority. and i completely agree, as i said earlier, that we need to work with the congress to make sure we bring about fundamental changes and how bankers are paid so that they are not taking risks that could imperil the economy as a whole. doing that is hard to do right. we tried in the past, not very successfully, it is an obligation that shareholders and boards have too. but it is the government's responsibility in the end to make sure -- >> my time is almost up. where we would take the money that was raised from that and put into small business lending and some are reduced lending to american enterprises. folks in vermont who run
businesses ask me if those dies make so much money, how come they can't lend me any? >> i agree with you. if you saw in the paper today, we are close to proposing to the congress that we take a large amount of the resources that we have gotten back from banks, from the large banks and devote them to exactly that objective, making sure that small banks and small businesses have access to credit. >> thank you, mr. secretary. my time is up. and the chair now recognizes the gentleman from ohio, mr. jordan. >> thank you plrk chairman. mr. secretary, you are involved -- you said this many times, involved with the decision 15, 18 months ago relative to the initial t.a.r.p. bailout, you're involved in all that, you thought it was the right decision to make at the time. >> i thought it was absolutely essential at that point. the country had no choice. >> and we had several hearings on bank of america and merrill
lynch and you were involved in that decision. you were supportive of what took place with the merger of -- the acquisition of merrill by bank of america, yes or no? >> that is right that at that time i was part of an effort to try to find a solution -- private solution to merrill lynch to that point and i @@nch to that point and i we acted because the consequences of failing at that time in those circumstances would have been catastrophic to our economy, american families and businesses. you think it was definitely the right desigs? >> i do. >> and the staff would be in agreement with that analysis, that this was so critical, this had to get done. the sky was going to fall, the world was going to end if we did not do what you decided to do. is that correct? >> i believe it is. but i think there are, to be
fair to say, there were those among us involved in this, in each of the institutions involved, washington, new york treasury, who were deeply troubled by that choice were not comfortable with this. >> were comfortable but thought it was what you had to do. >> i believe that. yes. >> and was so important, that this was critical to american families, american businesses. >> i believe that. >> so this begs the obvious question. why the secrecy relative to disclosure? if it's that important, $62 billion, why not disclose it when it's happening? why the secrecy? and, frankly, why weren't you -- if it's that important, why did you recuse yourself? why weren't you invooveled? involved -- if it is that critical, that important, why in the heck did you recuse yourself -- why weren't you involved? >> well, again, just to step back a sec, when the fed discloses this in march, i
thought it was the right thing to do. and i think reasonable people looking back at this could say why wasn't that possible sooner? i think that's a reasonable -- >> why wasn't it possible in november when it was all going down? >> right. but all i can say is what i understand i was involved in and i was not involved in discussions about -- decisions about what to do with that particular transaction that contribu counterparties or the details. >> let me ask you this. do you believe the decision that was made by the folks who work for you at the new york fed to not disclose until march and not disclose when it was all taken place, do you support that zb s decision? >> congressman -- >> it is yes or no. you said it was so critical, the world was going to end, everything was going to go to -- >> it is very hard to put yourself in shoes you did not occupy. and have really a fair sense to evaluate those actions in that case. and i don't feel like i can put myself in their shoes at that time.
>> let me tell you what i think happened. >> but i do believe that they acted with great integrity, care and judgment after -- >> here's what happened l lynch was on the right trail over here. this is a pattern. we have seen it. you came to the congress of the united states and said give us $700 billion of -- >> i did not do that. >> i'm saying the government. the government came to the congress -- >> your government, your president at the time. >> i understand. i didn't say democrat or republican, i understand the government. give us the money, we're going to go buy the trubld assoubled . nine days later, you were in the room when they told the biggest banks, we're not going to buy the biggest assets. >> that was one of the most important decisions. >> understand the pattern. the congress of the united states was told one thing, ten days later an entirely different action was taken place. >> i don't think that's correct. what congress authorized -- >> you don't think congress passed that bill because they understood that the money the taxpayers were going to put up was going to be used by troubled assets?
>> i can't put myself in your shoes but the authority that president bush asked for gave my predecessor the authority to put capital in banks. and doing that -- >> here's pattern, mr. geithner, here's the pattern. the government comes to the tax payers and says we need more of your money, the world is going to end, we want it for a specific purpose and then do it for something else. they come to the taxpayers, we need more of your money and we're going to use $62 billion and don't disclose to the taxpayer what is go on. this is why we never should have traveled down this road, this unprecedented involvement by the government in the private sector. we have seen it with -- >> gentleman's time has expired. >> we see is now with aig. >> i thank the chairman. >> gentleman's time has expired. thank you. the chair recognizes mr. clay. >> thank you so much, mr. chairman. and i want to thank chairman towns and issa for conducting this hearing.
secretary geithner, several economists and policymakers assert that aig's ability to provide cash collateral to their counterparties was not relevant in designing their assistance package. what is your opinion on this claim, that it was not relevant in designing the assistance? >> i agree that the -- what was relevant and necessary was how to restructure this firm in ways to protect the taxpayer, to the extent we could, from the risk of greater losses. and our choice was at that point this very stark tragic choice, let aig default or not. and we thought that default itself would have been much more expensive. >> okay. let me -- help me and help, i guess, help the american people understand, why was aig's
ability to make payments to its counterparties for their toxic assets even a factor in determining the amount of bailout money to award them? >> for an insurance company or any financial institution to operate, they need to operate with a high credit rating. without that, they could not borrow money to function. they could not write insurance contracts because people would not believe they would have the financial wherewithal to back those commitments. so the rating is critical. if we were to have defaulted on any of those legal contracts, aig would have been downgraded. the counterparties would have the right to take more money, and to default on -- and to bring about the basic collapse of the firm. so it is that stark tragic choice. if aig had not paid, they would have lost the rating and the firms would have collapsed -- the firm would have collapsed. if we had continued to lend the
money for them to make those payments, the rating would have also been in jeopardy because aig already had a lot of debt at that point. the choice was to restructure them so we limited the drain of cash and left the tax pay we pa >> you are saying the counterparties would have had a right through bankruptcy -- >> a legal right to sue to recoup that claim. >> okay. did anyone involved in the concession negotiations ever suggest that aig's counterparties should not be relevant in their bailout packa package? did that issue ever arise among the negotiations or anyone that you encountered during the negotiations? >> that is a complicated question, good question, but as i tried to explain in testimony,
the -- what we're guided by -- what was going to be the best way at least cost to prevent a default and protect the system and the entire system was at stake then. and no firm in the country would have been insulated fully from the collapse of the entire american financial system. and our judgment was that aig's default would have materially raised the probability of that collapse. our choices were terrible choices, but they came down to what was the best way to prevent that outcome on the best terms for the taxpayer. >> so then that get to the point of being too big to fail. aig's tentacles were that widespread throughout the country and the world that -- >> exactly the right question. there are two things that matter in this case. one is you had a set of firms like aig, huge, risky, spread
everywhere, involved in a whole range of things. and you had a world that was burning. so, again, the first time since the great depression you had financial systems around the world really at the brink of stopping in their tracks. and it is those two conditions that are most risky. if the world had been stable, everything would have been fine, we weren't on the edge of the worst recession in generations, then we could have been afforded to be completely indifferent to the fate of aig or all of those institutions. but because aig was so large and so interconnected and because the system was so fragile, it would have been irresponsible to take the risk the failure would have dramatically amplified the pressures we're still living with today. >> did -- could you help describe what the reaction was in the negotiations to the counterparties, pros and cons,
as far as, you know, paying counterparties. >> we wrestled with lot of choices as i tried to explain in my written testimony. we thought about whether it was better to default, to impose a haircut, to negotiate concessions under threat of default. we thought about keep paying and watch that money keep running out the door with the counterparties still holding the underlying assets. we thought about negotiating over time, trying to stretch it out, see if we could find a better way to solve that problem. none of those options were realistic. none of them were feasible. they were not better than the choice we chose. and, again, if you -- i think you look back and take a fair reading of this, although the government is still exposed to substantial risk of loss, those losses are much lower today because of the actions we took in aig and this transaction, which, again, people are so understandably concerned about, has put the taxpayer in a better position than if simply we kept
making those payments or if we defaulted on them. >> thank you. >> the gentleman's time has expired. i yield five minutes to the gentleman from california, congressman bilbray. >> thank you, mr. secretary. we're supposed to do oversight and reform. we're trying to get information so that we can do the reform to make sure the next time this process comes up we have procedures and laws that address this. and so it is real important that we identify how this went so we can try to correct it and make sure it doesn't happen again. not only in march you knew that there was a so-called disclosure issue, but in february you had said in a speech that one of the major issues that you were concerned about is the lack of disclosure that was causing the american people not to trust the system. now, i think we'll all agree that in layman's terms what the average citizen when they heard disclosure issue, they hear
cover-up. now, why, in a system that is supposed to be open, the american people have a right to know where their money goes. why was there even a disclosure issue. why were we even discussing the so-called cover-up of the $160 billion, where it was going, in this process? why was that even an issue that as soon as you knew there was a problem there that somebody didn't clarify this? was that your staff had basically did not inform you that there had been this cover-up this disclosure issue, and did you make that decision or was that a decision made outside? because aig sent the information over. it was an internal process within the government itself that said we're not going to disclose to the public this information. >> my colleagues at new york fed, i think they put in the public domain a very thoughtful explanation of the judgments they wrestled with and ultimately reached. and i know and i'm confident that their colleagues in washington spent a huge amount of time throughout those months
trying to wrestle with how to meet the underable public interest in greater disclosure of these things and they ultimately, i think appropriately, came to the understand that they could and should put that information in the public domain. now you're exactly right, i have been a great proponent of greater transparency and the centerpiece of the strategy that we adopted to fix this mess in the financial system was to force the largest banks in the country to disclose for the first time to the public, to all investors, the scale of losses they might face in the event this recession was much more damaging than it proved to be. and that provided the basis for private investors judging who was strong, who was less strong, and deciding to put in capital in those institutions. >> were you told -- in other words, did your staff know the cover-up was there, disclosure issue was there before you knew it was there?
was the decision to -- >> again, i think as the record the committee has already put in shows there were discussions that were happening about what to disclose when throughout that period of time. >> were you involved in those discussions? >> as i said in my thing, i'll say it again, i played no role in decisions about what to disclose about these transactions to these individual counterparties. >> did your staff make the decision not to inform you or include you in that decision-making process? >> yes, they did, though i made -- >> would you -- would you want to know about that or would you prefer that you didn't know about it at the time? >> i think in retrospect i wish i had known, frankly. but after november 24th i appropriately removed myself from decisions about a whole range of policy issues the fed was dealing with, but the people that were making those decisions in close consultation with people in washington and with legal counsel, are people of
great judgment and enormous integrity and i have enormous trust and confidence, not just >> i do not, in my entire time there, i was never aware of a situation in which my colleagues sought to shield me from some something con shl. i was president of the new york fed. i was going to be account quable for decisions made on my watch. but after the 24th for reasons that i think are fair and right for the institution, i could no longer run thoseday to day judgments. and i withdrew from those and i think those were necessary. >> and your staff decided to shield you from the scoverup side of it, too? >> i didn't decide this alone. i decided in consultation with the chairman of the board of governors of the federal reserve system and with the
incoming administration to protect the institution from the unique conditions i was in then. . . the unique conditions i was in then. >> mr. secretary what date did you know that that there was a cover-up, a disclosure issue, when were you informed? >> i only knew about these discussions about disclosure when they started to make -- to be in the public domain -- actually i don't know when they first rose to the attention of the congress. but when they rose to the attention of the congress, they were in the press, i was aware of them. >> the gentleman's time has expired. >> thank you very much. >> let me thank you, secretary geithner, for your testimony and, of course, we will now -- >> mr. chairman? >> mr. chairman, i would ask unanimous consent that all members be allowed to put their questions in writing to the secretary and would ask that the secretary, if he would respond to them in writing since so many members were not able to ask their questions. >> without objection, so
ordered. thank you, mr. secretary. >> mr. chairman -- >> mr. chairman, i'm not sure what the right point of order here is, but i recognize how tremendously busy the secretary is, but i also recognize the need for this congress and people on both sides of the aisle to be able to ask some questions. we have been waiting patiently here all day. i would hope that the chairman would do what is necessary -- >> i'm one that, as you know, you've been here long enough to really know me because i believe in openness and i believe in going as long as it takes, but mr. paulson has a problem with his schedule in terms of the amount of time he would be allowed. so if we continue, then he will not be able to testify. so i think that's the issue that we have to deal with. so that's the reason why we're cutting it because -- it was agreed that this would happen, and, of course, i understand that several people that did not have an opportunity to raise questions. but what we -- what i would suggest is that you put the questions to the secretary in
writing and he will answer because if not, then the second witness we will not be able to hear from at all and i think -- >> mr. chairman, if i could be so bold, my guess is if we were to survey or talk to the people on the panel, particularly the people who didn't have a chance to ask questions, i think with all due respect, we would much rather hear from the current treasury secretary than the past treasury secretary whose schedule is probably more flexible. >> the point of the matter is we have a hearing that has been scheduled and it has been structured. and i wish we could sort of stay here and allow everybody to do that, but the point is that i think in this situation -- >> mr. chairman -- >> -- i'd be delighted to yield to the gentleman again. >> i appreciate t you've been so fair and generous and personally very good to me. is there a way we could vote on which direction to go on this? >> well you know, it is actually up to the chairman. but let me say what i would like to do.
i would give a minute to two on this side and a minute to two on this side and that's it. we have to move forward. we have a scheduled hearing that is here, looking for certain -- >> would the gentleman yield? >> looking for certain information. in order to get information we need to talk to the present secretary. we need to talk to the past and, of course, we have others that we still -- >> would the gentleman yield? >> mr. chairman, i join you in that. >> reserving the right to object. i just want to say that any member of this committee has the ability to submit questions in writing. mr. geithner, in response to an earlier question, said that, you know in the interest of time, he would be willing to answer questions in writing. is that not true? >> absolutely, of course. >> so mr. chairman, anybody who wouldn't get a chance to ask a question here could put it in writing. i withdraw any objection. >> let me say that we will go two on this side, two on that side, but a minute, remember --
>> reserving the right to object. >> yes. i don't know what you're objecting to. >> if you'll recognize me. unanimous consent request for two minute each. i would be happy to forgo my time for secretary paulson to ask secretary geithner -- >> i wish we could operate that way, but, you know, when you have hearings that are structured, they're not structured in the fact that someone would give up their time -- that's not the way we do it. so the point of the matter is that we accepted two minute on this side, or we move forward. okay. so that's what's on the table. so two minutes on this side, two minutes on that side. okay, you want to designate. >> i withdraw my objection. >> designate the two on this side, mr. connolly. you have a minute to raise one question with the secretary. mr. connolly from virginia. okay. >> thank you, mr. chairman. and thank you -- >> can i ask for one minute. >> thank you, mr. chairman.
mr. geithner, we have one minute, and one has the sense that some people in this room perhaps want to rewrite history and i understand given the history of why they might want to do that. in your opening statement, you talked about the need for financial regulatory reform. could you expand on why we need that particularly when it comes to regulating that which was resisted from regulation in the past like drierivatives and cret default swaps. >> i don't think it is a hard case to make. look at the wreckage caused by the crisis to say the system failed dramatically. and, again, the two most simple failures that happened is people were allowed to take risks without constraints. we let a system operate where systems that were huge and consequential operated with no adult supervision, with no constraints and brought the country to the edge of collapse. let me just say one thing in common with the following firms, fannie and freddie, the largest investment banks in the country,
a aig, a set of specialized insurance companies, a whole range of consumer finance companies, a bunch of -- they all had one thing in common, which they were not subject to a set of sensible rules to constrain the risks they had to take. what we pros to in financial reform is to change that. it is a simple imperative. that's not enough, though. because people make mistakes in the future. so we need to make sure when they make those mistakes that we can let them fail and failure can happen without catastrophic damage. we need to be able to contain the damage, isolate it, draw a line around it, put them out of their misery, put them out of existence without the taxpayer being exposed and we need to make sure that we don't have a system where the taxpayer is exposed to the risk of loss where investor and creditors live with the expectation that the government will be there again. and, again, that's something that is a -- i think we all have a huge obligation, responsibility. it was the laws of the land that allowed that to happen. the law of the land that made it impossible for the government to act and i think we need to work
together to change that. >> i thank the gentleman. i thank the chairman for his consideration. >> thank you very much. and now i recognize mr. fortenberry. for one minute. >> thank you, mr. chairman. mr. secretary, welcome. for last year and have we have been privatizing profits and socializing risk. and if the optic on the aig aren't bad enough, the counterparties to the aig who received 100% parody for their liabilities, seven of the top ten are form firms so cmt generalal had $6.5 billion of american taxpayer bailouts in effect followed by goldman sachs. you said this economy is crisis. this year goldman sachs will give $16 billion of bonus payments, about $500,000 per employee. this is really difficult to understand why there wasn't, at first, a desire to have transparency in regards to counterparty transactions. can you address that, please? >> i'm not sure if you were here
for that part of the conversation -- >> i was here for the entire time. >> but, again, the actions we took were necessary in the public interest, better than the alternatives, to help prevent catastrophic damage and if you are outraged as i think you should be about how the economy and our system was in this mess, i hope you will join with us in trying to work to make sure it doesn't happen in the future. this is not something that should be republican or democrat. there is a deep, i think, moral obligation we have to try to make sure we put in place reforms that will prevent this from happening again. . if the government had done that sooner, this would have been less damaging and a critical part of the failure was we ran a country, largest economy in the world, largest financial system in the world, without having the kind of bankruptcy type powers we had for banks for decades. >> let's try to do that on a bipartisan basis, sir, please. >> i'm sorry, the gentleman's time has expired.
and now i recognize the gentleman from illinois, congressman davis, for one minute. >> thank you very much, mr. chairman. and thank you, mr. secretary. let me just ask if you had to do it again, to do it all over, would you change any of the decisions that you made in the fall of 2008 to rescue aig and pay the counterparties part? >> congressman, as i think about this a lot, and one of the great things of our country is people look back and come to their own judgment, whether we made the best choices. but i am very confident that we made the best of a set of terrible choices, that there were no better alternatives. we did not have the option of bankruptcy. we did not have the option of default. we did not have the option of selective haircuts. it would have been catastrophic to let the institution fail. we didn't rescue aig.
we intervened so that we could dismember it safely wrought it wre -- without it wrecking the country and the system. i think the big mistake we made as a country and there are mistakes that we have to reflect on deeply for a long time, were why the government didn't act sooner to limit risk taking, why the government didn't provide competent authorities with the ability to contain risk taking and why we didn't have in place the kind of tools we had for a long time for banks to try to deal with these kind of failures. i think those were tragic mistakes. the lesson of financial crises is if you don't act sooner, things get to the point where they can cause catastrophic damage. and if you let it -- if you stand back and hope it will burn itself out, correct itself, it will be a good healthy adjustment for the economy, that can cause enormous damage. and it will cause enormous damage not just to the american lives and people who will be living with for a long time, but to the revenue base of the country, deeply impairs the capacity for government to do
things that are necessary, like -- that we need resources for, protect national security, make sure teachers can be in the schools, these things are deeply connected. if you stand back, and try to hope the market will fix itself, you court catastrophe. i hope we learned that lesson. should never happen again. >> thank you very much. >> the gentleman's time has expi expired. i recognize the gentleman from utah. >> thank you, mr. chairman. thank you plrk secretary. i was going to ask about the 18 phone calls you made to rahm emanuel, more than any member of congress. what i would ask you about is this idea that they're going to make prompts. i'm going to read two statement and request you a question from neil barofsky's testimony that is coming up. first one is, quote, on page 13, treasury's own t.a.r.p. financial statement estimates that treasury will not be made whole but is rather projected to lose more than $30 billion on its aig investments. second quote, narrowly asserting
that taxpayers will be made whole on maiden lane three, one part of the aig counterpart transactions without mentioning the huge losses treasury expects to suffer on other inextricably linked parts of the very same transacts is simply unacceptable. the american people deserve better. so my question, and hoping you can respond to those two statements, is when you refer to profits from the aig counterparty bailout are you counting the cost of the $35 billion in cash aig handed over to counterparties, or just the $27 billion they got directly from the new york fed? >> congressman, i think mr. barofsky and i agree on this and i said in my statement, i was very clear, the government is still exposed to substantial risk of loss on its investments in aig. the federal reserve, in this transaction, i think more generally is unlikely to face any loss. that is a good thing. we should welcome that. but the government is still
exposed to risk of loss. we don't know how large the losses will be. what you refer to is not a projecti projection, just an estimate based on current market prices. but the important thing, i hope you join me in this, if we adopt this financial responsibility fee, the taxpayer will not bear a penny of the burden -- >> sounds like a tax to me. doesn't sound like a -- sounds like a tax to me. >> call it what you want. >> i call it a tax. i wish you would too. call it what it is. >> again, in the law the congress passed, authorizing these actions, congress required the secretary of treasury to propose a way to make sure taxpayers are held harmless. we did that. i hope you will join us in supporting that because there is no reason why the american taxpayer should be exposed to a penny of loss in what we did in aig. we can make that
>> you can learn more about the federal tim plus program by visiting c-span.org/stimulus. tonights the history of executive power from george washington to george w. bush. -- >> on thursday, the senate approved for the second term on ben bernanke. the final vote was 7-30. a portion of the florida bid beginning with bernie sanders. this is an hour 25 minutes.
madam president, in a little while, we are going to be castin on issue of c ce that is whether we reappoint ben bernanke as chairman of the fed. and i'm here to argue that that would be a very bad decision, that we should reject this nomination, that we need in this country a new wall street which understands that its function is not simply to make as much money as it can for extraordinarily wealthy people on the street but begin to integrate the functions of wall street into our productive economy, make credit available to small- and medium-sized businesses so we can break out of this horrendous recession which is causing so much pain from one end of this country to the other.
and in order to create a new wall street, we need a new fed and we need a new fed chairman who is going to provide new leadership. the sam same-oamed, same-old ist going to work. mr. president, everybody in america agrees and understands that a little over a year ago, our nation -- in fact, the world's financial system -- came to the edge of a major collapse, a major collapse. and, madam president, everybody also understands that the function of the fed is to protect the safety and soundness of our financial institutions. that is its main function. can anybody deny with a straight face that the fed and its
chairman, mr. bernanke, failed at its task? they failed. this is not a personal attack against mr. bernanke. but while wall street became converted into the largest gambling casino in the history of the world, where was mr. bernanke and the fed, whose job is to protect the safety and soundness of our financial institutions? they weren't there. and it seems to me to be a very bad idea to reward somebody with reappointment who failed at an enormously important task which has driven this country into a severe recession so that 17% of our work force today is either unemployed or underemployed.
millions of our fellow americans have lost their homes, they've lost their savings, they've lost their ability to send their kids to college. they've lost their hopes for the future. mr. bernanke failed at his job. he should not be rewarded with reappointment. further, madam president, many of us, after eight years of the bush administration, we said it is time for a change, it is time to change the priorities of this nation. time to move us in a new direction. the evidence is overwhelming that from an economic perspective as well as many other perspectives, the bush administration failed. let me quote from "the washington post" earlier this month, and this is what they said about the bush economy. quote -- "the past decade was the worst for the u economy
in -- for the u.s. economy in modern times. it was, according to a wide range of data, a lost decade -- let me repeat, a lost decade for american workers. there has been zero net job creation since december 199 9, zero. middle-income households made less in 2008 when adjusted for inflation than they did in 1999." a lost decade. standard of living for american workers, down. creation of wealth, down for american workers. ben bernanke was not only appointed by george w. bush to be chairman of the fed, madam president, he was a member of the bush administration. in fact, he was the chairman of president bush's council of economic advisors. why do you not want to reappoint
somebody who not only failed at his job as chairman of the fed in terms of protecting the safety and soundness of our financial institutions, but was an architect of the bush economy, which was a disaster for american workers. madam president, we need a new direction at the fed. and it's not only looking back at the failures of mr. bernanke, it is looking forward and saying, how can the fed respond to begin to protect the middle class and working families of our country? and here's something that has not been discussed enough. the fed today has enormous powers. now, many will remember that as part of the bailout, mr. bernanke and the bush administration not only pushed "if a $7 --
not only pushed for a $700 billion bailout for wall street, but on top of that, mr. bernanke provided trillions of dollars -- let me underline that -- trillions of dollars in zero-interest loans to large financial institutions. as a member of the budget committee, i had the opportunity to ask mr. bernanke which financial institutions received those trillions of dollars. i don't think that's an unreasonable question on behalf of the american people. and mr. bernanke said in so many words, sorry, senator, i'm not going to tell you. the american people don't have to know who received trillions of dollars of their money. that, to me, is totally unacceptable. we need transparency at the fed and mr. bernanke has not provided that transparency. i have introduced legislation to
bring that transparency to the fed, somebody whose views are very important than mine on many issues, ron paul in the house, brought forward similar legislation. we need transparency. we need a chairman of the fed who will give us that transparency, and that's something that mr. bernanke can do tomorrow. madam president, in my state of vermont, and i'm sure in your state of new york, people are calling you every single day and they are saying, we are sick and tired of paying 25% or 35% interest rates on our credit cards from the same banks and bunch of crooks that we bailed out who got us into this recession in the first place. now, imagine that. you've got people who act on wall street in a reckless, irresponsible, illegal way, taxpayers bail them out and they say, thank you, taxpayers; by
the way, we're going to raise your interest rates on your credit cards. have a nice day. all over america people cannot believe, they're outraged that this is happening. well, you know what? mr. bernanke and the fed have the authority today to lower interest rates on credit cards. they could do that today, and that is what they should do,because one of their responsibilities is to protect consumers against outrageous and fraudulent activities. and, in my view, charging people 25% or 30% is outrageous and fraudulent and use russ is user. madam president, all over this country -- the president mentioned it last night, appropriately so -- all over this country, small- and medium-sized businesses who are making a profit are crying out for low-interest loans in order
to expand their businesses and to hire new workers. one of the great economic problems we're having as a nation -- the president touched on it last night -- is the need for small, productive businesses to get the low-interest loans they need. well, mr. bernanke was there. the zero-interest loans, the large failed fraudulently, dishonestly run wall street firms, but he ain't there for small businesses all over this country who desperately need low-interest loans. the fed has the authority toda today -- not tomorrow, today -- to provide low-interest loans to small- and medium-sized businesses so that we can begin to hire new workers and bring our economy out of the severe recession that we are currently in. madam president, the reason, as
i understand it, that the taxpayers of this country -- against my vote, i should say -- were asked to bail out the crooks on wall street was because they were too big to fail. you see, if a small business goes under, that's okay. somebody's worked his whole life building the business, fails, no problem. we don't help them. but if you're a big, large financial institution and you engage in reckless, illegal behavior, we bail you out, because if you go down, you're going to take a large part of the economy with you. you're too big to fail. well, many of my colleagues might be surprised to know that three out of the four largest financial institutions in this country that we bailed out because they were too big to fail are bigger today than they were before we bailed them out because they were too big to fail. that may make sense to somebody. not to this united states senator. it seems to me that what common
sense suggests is that we break up these large financial institutions so, a, that the american people are never again put in the position of having to bail them out because they're too big to fail. and second of all, that we begin to understand what teddy roosevelt understood 100 years ago, is that that concentration of ownership is dangerous for the economy. today you have four major banks who are writing -- who are providing two-thirds of the credit cards in this country. four major financial institutions, two-thirds of all the credit cards. you have four major financial institutions who are writing half the mortgages in america. that's wrong. break up the large financial institutions, as we've talked about all over the world. ben bernanke has the ability to begin to do that tomorrow. i've not heard one word from him
to suggest that he will do that. madam president, the american people are angry. the american people are frustrated. and what they are angry and frustrated about is that in many instances they are working longer hours for lower wages than they used to if they are fortunate enough to have a job. the american people are frustrated and angry because this immediate financial crisis and severe recession was caused by the recklessness and irresponsibility of a handful of people on wall street. and the american people are frustrated and angry because they are not seeing the kind of
accountability and change in terms of the activity on wall street that they expect and demand to happen. quite the contrary. after having bailed out people who acted in an illegal and irresponsible way, what they are seeing is wall street pumping millions of dollars into campaign contributions and lobbying so that we can bring them back to where they were before the bailout. the american people want change in the way our financial institutions run. the american people want change at the fed. and i believe the american people want a new chairman or chairwoman at the fed. now is the time to say to the american people, "we hear you. we are going to bring about change. we are going to deny the reappointment of ben bernanke as
chairman. we are going to ask president bush to give us a new nominee who is going to stand up for the middle class and working class of this country rather than for the big money interests on wall street." thank you very the clerk the clerk: nomination, federal reserve system, ben s. bernanke of new jersey to be chairman of the board of governors for a term of four years. the presiding officer: the senator from south dakota. mr. johnson: madam president, i rise in support of the reconfirmation of chairman ben bernanke to serve another term as chairman of the federal reserve board of governors.
as the administration and song continue to look for ways to restore our nation's financial stability for economic recovery and work on the legislation to ensure that another economic crisis like the one we faced last year never happens again, we need chairman bernanke's steady leadership. while there has certainly been criticism of the federal reserve for not doing enough to protect consumers and for unprecedented actions it took during the financial crisis, there is also consensus that mr. bernanke kept the nation out of a depression and has kept inflation in check. as our nation recovers and faces additional challenges in the months ahead, there is no doubt
that having one of the world's foremost experts on the great dpletion at the helm of the fed is a benefit to our nation, but it cannot be business as usual for the fed. like many banks on wall street, the fed must be more transparent and more accountable for its actions. the federal reserve cannot just be the organization that picks up all the financial institutions' bills while placing our entire economy at risk in doing so. the status quo at the fed is not acceptable. our nation needs a central bank that is proactive in addressing concerns for our national institutions and the economy. i believe mr. bernanke is committed to these goals and i
support mr. bernanke's confirmation. madam president, i yield the floor. the presiding officer: who yields time? a senator: madam president? the presiding officer: the senator from alabama. mr. shelby: madam president, i rise today to oppose -- to oppose the reappointment of ben bernanke for a second term as chairman of the board of governors of the federal reserve system. madam president, the principal reason for my opposition to this nomination is that i believe in accountability. in particular, i believe that it is the duty of this body -- that is, the united states senate, to hold accountable those regulators hooz poor oversight of our financial institutions and markets help produce the greatest economic crisis this country has experienced in some 80 years. madam president, because the
preserve during chairman bernanke's tenure failed to take the steps to ensure that our financial institutions were properly regulated and would not need federal bailouts to survive, i do not believe that mr. bernanke should be confirmed for another term. prior to the recent financial crisis, as a member of the board of governors, dr. bernanke advocated monetary policies that contributed to excessive risk taking. subsequently, as board chairman, he ignored or down played the serious emerging risk. he failed to use regulatory authority available to the fed to prevent housing speculation and unsound lending practices, often misjudged the nature of problems in markets, contributed to market turbulence by appearing to act inconsistently and in an ad hoc manner he
failed to ensure transparency of actions and basically took actions damaging to the political independence of the federal reserve and of our nation's monetary policy. madam president, i do not believe that chairman bernanke has executed sound judgment and oversight over the fed's monetary policy. lender of last resort and regulatory and supervisory functions. i will explain. chairman bernanke has advocated policy of remarkably low interest rates for an extended period of time following the 2001 recession, providing an environment -- providing an environment that helped fuel a speculative bubble in real estate lending. madam president, subsequently, in the face of rising home prices and risky mortgage underwriting practices, the fed failed to act under bernanke's
watch by choosing not to use its rule-making authority over mortgages to arrest the risky practices and address growing risk. and yet, madam president, amazingly, given a history of failure in supervision and regulation, chairman bernanke now continues to actively campaign for maintaining and further expanding the regulatory powers of the federal reserve. madam president, the financial panic that our markets experienced in 2008 was the most severe, as i said, in modern memory. its repercussions have resulted in our unemployment rate surging to more than 10%, and the worst economic growth in a generation. our present economic problems, however, are no accident. in large measure, they stem directly from the actions of our financial regulators. madam president, it's the
responsibility of our financial regulators to ensure that our financial institutions are properly supervised and that they promote rather than threaten our national economy. unfortunately, the recent financial crisis demonstrated that our financial regulators did not do their jobs. our banks were undercapitalized. mortgage lending standards were far too loose and expectations of government bailouts were too prevalent. madam president, dr. bernanke's federal reserve played a key role in setting the stage for the financial crisis that we're in now. first, under his leadership, the federal reserve failed to ensure that our financial institutions were adequately capitalized, as i mentioned a minute ago. indeed, the federal reserve, our federal reserve, led the effort to reduce capital, reduce
capital, madam president, in our largest financial institutions through the adoption of the capital accords. the fed even considered abandoning a leverage ratio which ensures that all banks maintain at least 4% of capital. think about it a minute. as a result, when the crisis struck, many of our financial institutions did not have the capital necessary to withstand the downturn. not surprisingly, the federal reserve then argued that a taxpayer bailout of the banks was the only way to prevent an economic collapse. but rather than do its job and ensure that our financial institutions were adequately capitalized, the fed waited until the crisis was in hand -- at hand and then rescued its banks with taxpayer funds. think about it a minute.
ben bernanke's federal reserve also failed, madam president, to detect and to address the decline in lending standards and growing use of subprime loans. at the core of our financial crisis is the fact that far too many home loans were made that borrowers will be unable to repay, probably ever. the failure of bear stearns, leeman, washington mutual and a.i.g. largely stem from the sharp declines in mortgage values, and although the congress gave the federal reserve authority to address lending standards and subprime loans when it passed the homeownership and equity protection act in 1994, the fed failed to enact strong regulations until 2008, more than two years under -- into chairman bernanke's term. in addition, ben bernanke's federal reserve has failed to
adequately supervise many of our largest financial institutions, most notably citigroup. for years, it's been no secret that the problems of citigroup have been well known everywhere, but the federal reserve always sought to look the other way rather than deal with its complicated problems. by failing to address citigroup during the good times, the federal reserve left our largest financial institution at that time highly vulnerable to the next downturn. in the end, the federal government had to inject inject $40 billion and guarantee more than $300 billion of citigroup's assets. the fed's failure as a supervisor, the regulator, placed u.s. taxpayers and our economy directly at risk. madam president, regardless of how chairman bernanke performed during the financial crisis, the record of the fed leading up to the crisis should not be ignored
by the congress. a close examination of chairman bernanke's performance during the financial crisis reveals that he was too slow to recognize how serious the situation was, and when he did react, he acted in an ad hoc fashion that greatly exacerbated the crisis. madam president, after the housing market bubble began to burst in 2006, chairman bernanke was slow to entertain possible spillovers from housing into the general economy and the financial system itself. even after bear stearns failed, chairman bernanke did little to prepare for additional failures. in other words, bernanke fiddled while our markets burned. in the next six months, between the failure of bear stearns and lehman, the federal reserve did very little to prevent either another taxpayer bailout or a sudden and disorderly collapse of lehman, even though the
problems were well known to the fed and to everybody else. as a result, when leeman was ultimately -- when lehman was ultimately allowed to fail, our markets responded sharply because they could not understand why the fed let lehman fail but rescued bear stearns. markets need clarity about policy, especially in times of crisis, yet just when our markets needed clarity about fed policy, chairman bernanke's ad hoc responses left our markets in the dark. consequently, the failure of lehman was far more disruptive and damaging than it needed to be. bernanke's response to the financial crisis also raises questions about his judgment. in october, 2008, he appeared before the banking committee in the u.s. senate to urge the passage of tarp. he testified that government purchase of top assets from banks was the best way to respond to the financial crisis. at the time, as a lot of you
know, i opposed tarp because i did not believe that purchasing toxic assets was a workable solution or should we bail out anybody. i argued that it risked ruling our financial -- risked making our financial problems worse by indirectly causing the failure of other financial institutions, and it did. despite chairman bernanke's urging that an asset purchase was the best solution just days after the passage of tarp, the treasury department and the federal reserve abandoned the very asset purchase plan that he judged to be the best course forward when he testified before congress. equity injections were employed because the usual -- because the asset purchase plan was proven to be unworkable, he said. madam president, the full story of a.i.g. is yet to be told. unfortunately, the fed and other regulators have gone out of their way to hide what really has gone on at a.i.g. both
before and after the bailout from congress. what is clear, however, is that the fed knew more about a.i.g.'s problems than it has admitted so far. the fed has repeatedly stated that it did not learn of a.i.g.'s problems until the weekend of september 12, 2008, and that it was stunned to learn of its problems. really? yet, in his recent book "too big to fail," andrew ross sorkin reports that the c.e.o. of a.i.g. met with then the new york fed president tim geithner about a.i.g.'s problems on at least two occasions prior to september 12, 2008. on one occasion, a.i.g.'s c.e.o. gave mr. geithner at that time documents detailing a.i.g.'s financial condition and its exposures to other financial institutions. we still do not know what treasury secretary geithner at
that time did upon learning about the problems with a.i.g. or whether chairman bernanke knew of a.i.g.'s meeting with the new york fed, at that time mr. geithner. the fact that the fed may have known about the problems with a.i.g. before its collapse raises serious questions here about whether they ignored early warnings and failed to take action before the situation became untenable without massive taxpayer bailouts. madam president, many have said that if chairman bernanke is not reappointed, financial markets will be rattled. the notion seems to be that continuity of leadership will be valued more by markets than the assurance of responsible and accountable leadership at the fed. i believ -- i believe this is shortsighted and wrong. it is more important to find the most competent person available for the job than to simply adhere to the status quo. madam president, it's also wrong to speculate as to what might
happen should someone other than mr. bernanke serve as chairman. i believe it's far more important to consider the facts surrounding chairman bernanke's record than it is to speculate about the impact of his depaver tour. -- departure. the record clearly indicates that considerable economic devastation occurred as a result of chairman bernanke's loose monetary policy and weak regulatory oversight. millions of people are now out of work in this country, and trillions of dollars in savings have been lost. madam president, those who try to frighten others with notions of what might happen are ignoring the hard reality of what already has happened. if we don't hold chairman bernanke accountable, what precedent are we setting for future regulators? what incentive will they have to take to tough steps necessary to ensure that our financial institutions are adequately
regulated? i fear, madam president, that the prospects of a high-paying job on wall street will diminish a lot of the incentives to be a good regulator unless they know that congress will hold them accountable. if they fail to do their job. how can we ever expect our regulators to perform if after the greatest financial crisis in living memory not a single culpable regulator is held accountability? unfortunately, this is a theme that is repeated too often here in washington. something terrible offer happend although congress exposes both individual and institutional failures, nobody is held accountable and the only one thing that ever seems to happen is that the failed institutions along with their failed leaders get more authority and more money. madam president, this needs to end. the american people rightly believe that any one of us who
neglected to do owrd job, we should be tholed account, not rewarded. madam president -- mr. president, i intend to do my job and vote "no" on a second term for ben beer naing ceevme ceevment. the presiding officer: the senator from connecticut is recognized. mr. dodd: i recognize my colleague from new jersey for five minutes. the presiding officer: without objection. mr. menendez: mr. president? the presiding officer: the senator from new jersey is recognized. mr. menendez: thank you, mr. president. let me thank my distinguished chairman of the banking committee for yielding time. i rise in support of a man whose position i do not envy. chairman bernanke neighed some -- has faced some extraordinary economic circumstances and kept a steady hand on the tiller in a perfect economic storm that has threatened this nation's economic financial stability. facefaced with an economy that s
in a downward spiral, chairman beer nieng key had to make tough decisions to preside is over a global economic meltdown. doing nothing is not an option. having said that i do believe there was more the fed could have done to supervise the banks and provide credit to small businesses. i believe -- and chairman bernanke admitted himself, he could have been ambassador to mitigate risks. in the future, i expect the fed will be more responsive to the needs of main street where there is a small business innovating is selling the new jobs of the 21st century and needs of american families across this country. i expect it will be more vigilant to prevent a repeat of the economic crisis we have experienced and we'll get ahead of future challenges we will face, like commercial loans and credit card defaults.
despite these reservations, i will be voting in favor of confirmation because it is my belief that history will show the recession would have spiraled into a depression had chairman bernanke been timid in his actions. i am voting "yes" because chairman bernanke has proven his val to this nation during this unprecedented crisis. a vote against confirmation would unnerve investors and exacerbate economic uncertainty in an economy that needs confidence and stability, not volatility. i believe chairman bernanke san astute scholar of the great depression and is now arguably the first and foremost expert on the great recession. at this moment in history, someone who has learned from two of the most devastating economic disasters in american history is certainly qualified to lead the fed. i will vote "yes" because in my
view what we should not do is change leadership at the fed at a time when what we need smos a steady -- 0 need most is a steady, experienced hand at what appears to be the very beginning of an economic recovery. i will vote "yes" because recently chairman bernanke has committed to more muscular regulatory reform that will corral the bulls on wall street. he has had the will to take politically unpopular strategic action which history will show was necessary under the economic circumstances created by the last eight years of runaway las say fair financial regulator regulatory policies. he understood the importance of keeping inflation low and stablizing the financial system. this time, mr. president, his work is not yet done and i believe we need the wisdom of patience. as elizabeth baron browning said, "measure not the work until the day is out and the labor done."
i'll vote "yes" because chairman bernanke has vowed in a letter h. to being aing comptroller to provide all records necessary for a g.a.o. audit of the fed to give a clear understanding of his and the fed's action in the billout of a.i.g. i believe he understands the danger of exacerbating the danger by tightening monetary policy at the wrong tievment president kennedy said, "in knowledge is light. we must think and being a not only for the moment but for our time." told the story after man who asked his gardener to plant a tree but the gardener said it was a very slow tree. at this point, the man said, there's no time to lose. plant it this afternoon." solving our economic crisis
surely will not take 100 years. the seeds of recovery that are taking place right now need to beer in toured by an experienced hand. i urge my colleagues to join knee ensuring confidence at the fed, not volatility. it is necessary for our time. with that, madam president, i yield back whatever time i have left to the chairman. mr. bunning: mr. chairman? the presiding officer: the senator from kentucky is recognized. mr. bunning: i yield myself such time as i may consume. i have up to 30 minutes, i don't think i'm going to need that. four years ago when chairman bernanke was first nominated to be chairman of the federal reserve, i was the only senator to vote against him. in fact, i was the onl the senao raise serious concerns about his nomination.
i opposed him because i knew he would continue the legacy of alan greenspan, and i was right. but i did not know how right i would be, and i could not imagine how wrong he would be in the following four years. from monetary policy to regulation, consumer protection, transparency, and independence, chairman bernanke's time as fed chairman has been a failure. we must put an end to his and the fed's failure, and there is no better time than now. the greenspan legacy on monetary policy was breaking from the tailor rule to provide easy money and, thus, inflate bubbles. not only did chairman bernanke continue that policy when he
took control of the fed, but he supported every greenspan rate decision when he was a fed governor before he became chairman. sometimes he even wanted to go further and provide more easy money than chairman greenspan. yet even to this day, chairman bernanke continues to deny that fed actions played any role in inflating the housing bubble, despite overwhelming evidence and the consensus of economists to the contrary. and in his efforts to keep filling the punch bowl, which is a term used by chairman bernanke himself, he cranked up the printing presses to buy mortgage securities, treasury securities, commercial paper, and other assets from wall street.
those purchases, by the way, led to some nice profits for the wall street banks and dealers who sold them to the fed. on consumer protection, chairman bernanke went along with the greenspan policy before he was chairman and continued it after he was promoted. the most glaring example is it took him two years to finally regulate subprime mortgages, after the fed had already done nothing for the prior 12 years. even then, he only acted after pressure from congress and after it was clear subprime mortgages were at the heart of the economic meltdown. and on other consumer protection issues like credit cards, he only acted at a time -- when the
time aproposed for his confirmation to -- when the time approached for his confirmation to another term at the fed. as the economy started to slide and the housing bubble peaked and then burst, chairman bernanke failed to notice the problems or do anything about them until it was too late. during that time, he made statements showing just how he did not understand what was really going on in the economy or how severe the crash would be. i want to read a few of those statements so that everyone understands just how wrong he has been. in march of 2007 -- this is chairman bernanke -- he said: "the impact on the broader economic and financial markets of the problems in the subprime market seem likely to be contained."
then in may of that year, he said, "we do not expect significant spillover from the subprime market to the rest of the economy or to the financial system." the following february he said, "among the largest banks, the capital ratio remains good, and i don't expect any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system." a few months later in june of 2008, he said, "the risk that the economy has entered a substantial downturn appears to have diminished over the past month or so." then in july of 2008, he said
that "fannie mae and freddie mac are adequately capitalized and in no danger of failing." finally, in may of last year, speaking about unemployment -- the unemployment rate, he said, "currently, i don't think it will get to 10%." well, we all wish he had been right in that one. i could read a few more quotes, but i think those are enough to show how wrong he has been on major economic issues. of course, everyone makes mistakes, so i asked chairman bernanke about these errors in written questions i gave him after his confirmation hearing. his